The existential threat from plummeting revenue

“…The government of Nigeria, from the financial perspective, is facing an existential threat…” That is the verdict from the World Bank. Nigeria is financially bankrupt. Everyone knows it. The federal government knows it, but it is only ignoring the reality on the ground and borrowing to sustain the ostentatious lifestyle of its officials.

Nigeria’s financial path is decadent and treacherously insolvent. The World Bank contends that “Nigeria is 115th out of 115 countries in terms of the average revenue to gross domestic product ratio”. Nigeria’s tax to GDP ratio is a scant 6.5 per cent where the average in Africa is 18 per cent.

In the Economic Community of West African States (ECOWAS) the average tax to GDP ratio among the 12 impoverished states stands menacingly at 15 per cent. Nigeria alone trails with single digit ratio.

Nigeria is the largest exporter of crude oil in Africa. Since Vladimir Putin’s cruel invasion of Ukraine on February 24, 2022, crude oil price hovers around $120 per barrel. Crude oil exporters are smiling to the banks. Even bankrupt Venezuela is looking up as the upbeat in crude oil price and western sanctions on Russian crude oil beef up its oil export revenue.

Conversely, Nigeria’s oil revenue has taken a precipitous journey down the abyss. The federal government is mourning as crude oil thieves smile to the banks. Crude oil worth $1 billion is stolen monthly.

Nigeria’s revenue crisis is so precarious that the federal government now services its mountain of debts with 119 per cent of its revenue. Consequently, government borrows 19 per cent of the money it uses to service its debt.

The federal government now lives totally on debts. Even the N1.4 billion used to buy 10 Land Cruiser SUVs to Niger Republic was borrowed. The money would be paid back with at least 12 per cent interest. That is something close to N115 million in debt service for the donation alone.

The irony of Nigeria’s existential threat from precipitous revenue decline is that the federal government behaves like the proverbial ostrich burying its head in the sand as the country navigates a catastrophic financial cyclone.

Nigeria borrows to live like a king. It donates like a king when in reality it is bankrupt debtor. It has borrowed $2 billion to build a railway to Niger Republic to encourage the use of Nigerian ports by Nigerien exporters.

The solution to that problem was to instill discipline in Nigerian security operatives and halt the extortion at myriads of check points which makes the hauling of goods from Nigerian ports to Niger unacceptably expensive.

Because the marauders in the police, customs and armed forces are too powerful to be tamed, government followed the line of least resistance and robbed Nigerian tax payers of a princely sum of $2 billion to find a solution to a problem created by corruption.

The federal government borrows from everywhere for its services. Its indebtedness to the Central Bank of Nigeria (CBN) is a staggering N19.9 trillion. That amount is not part of the N41.6 trillion national debts now being serviced with 119 per cent of the nation’s dwindling revenue. It is something the CBN uses through ways and means to bail out government when it is choked up financially.

The ways and means process of funding government services is partially responsible for the surging inflation rate in the economy.

The federal government is totally responsible for Nigeria’s existential threat from sagging revenue. It has done practically nothing to stem the nation’s calamitous trade imbalance which sees Nigeria importing 87 per cent and exporting 13 per cent of the goods in its trade balance.

The World Bank argues that Nigeria will spend N6.7 trillion on petrol subsidy in 2022. That again is borrowed money because Nigeria’s annual revenue can no longer fund its debt servicing commitment.

Corruption has crippled Nigeria’s four refineries. They have not refined even a barrel of crude oil in the last two years. Yet some of them are still recruiting children of top politicians to enjoy the industry’s bountiful pay.

An average refinery worker’s monthly pay is about the annual pay of a level-8 officer in the civil service. They collect that for doing nothing. That explains why the federal government spends about N300 billion annually funding refineries that produce nothing while it spends close to $10 billion annually on refined petroleum products imports.

The federal government can save the N6.7 trillion budgeted for petrol subsidy if Nigeria was self-sufficient in refined petroleum products. Even with oil price at triple digits, the pump price of locally refined petrol cannot be more than N200 per litre. Corruption and gross ineptitude are at the root of Nigeria’s mega bill on petrol subsidy. Nigeria is perhaps the only country in this planet that does not know how much petrol it consumes in a day.

The con men in Nigerian National Petroleum Company Limited fleece Nigeria through fraudulent subsidy figures which no one is bold enough to verify. Nigeria cannot spend more than N2 trillion on petrol subsidy if it was paying for what is consumed.

Nigeria is a corrupt and inept tax collector. That is why tax to GDP ratio is an abysmal 6.5 per cent.

Nigeria’s unwieldy informal sector is partially responsible for the abysmally low tax revenue. Millions of people in the informal sector make daily turnover in millions of naira but pay nothing as tax because the tax man has no data on them.

The federal government has always seen the value added tax (VAT) as a line of least resistance when it comes to beefing up its sagging tax revenue.

Ironically, unmitigated hikes in VAT amount to an invitation to surging inflation in an import-dependent economy where the national currency depreciates persistently.

The federal government can easily raise tax revenue to 15 per cent of GDP where tax revenue alone would rake in something close to $40 billion annually.

Oil thieves are not invincible. Government would be celebrating gross ineptitude if it claims not to know them. Each time the issue of oil theft comes up, the navy displays sites of makeshift refineries destroyed in the creeks of Niger Delta.

Everyone knows that 200 primitive refineries cannot refine the 500, 000 barrels of crude oil stolen daily. Someone has to tell us how barges with thousands of barrels of stolen oil slip through the prying eyes of the navy.

Nigeria can fend off the impending existential threat from sagging revenue if it halts oil theft and raise tax revenue to 15 per cent of GDP.

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