The ominous projection by IMF

The projection by the  International Monetary Fund (IMF) that all revenue that will accrue to the federal government in 2020 will be spent on interest repayments is quite worrisome. The forecast is ian ominous sign that the nation’s economy is indeed in a steep recession whose recovery may not be anytime soon unless drastic measures are put in place. 

Jesmin Rahman, IMF’s mission chief and senior resident representative for Nigeria, disclosed the projections while speaking at a webinar hosted by the Nigerian Economic Summit Group (NESG), Fiscal Policy Roundtable and Tax Investment and Competitiveness Policy Commission. Rahman attributed Nigeria’s fiscal problems to low revenue. “The first vulnerability comes from having a very low level of fiscal revenues, total revenues at seven per cent of GDP is less than half of sub-Saharan Africa’s average and far lower than the averaging oil-exporting countries. It is also lower than the minimum threshold of 12 per cent which is considered necessary for the government to provide an enabling and growth-enhancing role.

“Interest payments take up a large share of revenues, leaving little resources for everything else this year, in particular, all of the federal government’s revenues are expected to be spent on interest payments.This is particularly staggering when we look at how little is spent on education and health.” Speaking further, Rahman said the fund considers Nigeria’s public debt, including Asset Management Corporation of Nigeria’s debt, stands at 29 per cent of GDP; lower than the 53 per cent average in other developing and emerging market economies. “When we do our in-depth analysis, public debt is projected to reach about 37 per cent of GDP this year and remains roughly around that level in the medium term,” she said.

“We do various stress scenarios in our debt sustainability analysis and in all of those scenarios, public debt does not go beyond 50 per cent of GDP. So, I will not say that public debt is having a crisis or that public debt is extremely high. It is really a revenue issue; very low and volatile revenue is what poses a lot of fiscal risks and there are sizable financing risks in the next 12 months.” Commending the 2019 Finance Act, the IMF official said Nigeria needs to move on multiple fronts to raise revenue beyond the minimum threshold necessary for government effectiveness.

She listed some of the moves to include improving value-added tax and company income tax efficiency, increasing the percentage of active taxpayers, reducing tax exemptions and raising trust in public institutions to improve tax morale. According to the medium-term expenditure framework and fiscal strategy (MTEF/FSP) report published by the ministry of finance, budget, and national planning, the debt service to revenue ratio for the first quarter of 2020 was 99 per cent. During the quarter, the federal government’s retained revenue was N950.56 billion while N943.12 billion was expended on debt servicing.

Recent statistics from the Debt Management Office (DMO) said Nigeria’s total public debt rose to $79.5 billion (N28.63 trillion) as of the first quarter of 2020, which is March 31, 2020. This represents a 15% increase from the figure that was recorded for the corresponding period in 2019, which was about $69.09 billion (N24.94 trillion). Nigeria has seen its debt stock rise sharply in recent years as the country tries to fund infrastructural and developmental projects and boost its fragile economy, which has been in and out of recession. The country’s economy has been projected to fall into recession again, due to the adverse impact of Covid-19 that has seen oil prices crash globally.

According to data obtained from DMO, $27.66 billion (N9.9 trillion) is the total external debt. This represents 34.89 per cent of the total public debt stock. Whereas, $51.64 billion (N18.64 trillion) is the total domestic debt, which represents 65.11 per cent of the total public debt. The federal government accounts for 50.77 per cent of the total domestic debt, which is $40.26 billion (N14.53 trillion), whereas the state governments and Federal Capital Territory account for 14.34 per cent of the total domestic borrowing which is $11.37 billion (N4.11 trillion).

Nigeria has been under a lot of fiscal crisis following the crash of oil prices triggered by the coronavirus pandemic. The oil sector accounts for about 90 per cent of the country’s foreign exchange earnings and about 60 per cent of its total revenue. The Nigerian government, for now, is focusing on the domestic markets and concessionary loans to help fund the 2020 budget deficit which is made worse by drop in revenue. In the recently approved 2020 revised budget, the federal government is expected to borrow N850 billion from the domestic market.

This rising debt has put a lot of pressure on the government’s resources as it spent $1.69 billion (N609,13 billion) to service its domestic debt in the first quarter of 2020 alone. According to Fitch, the country’s debt to revenue ration is set to deteriorate further to 538 per cent by the end of 2020, from the 348 per cent that it was a year earlier. It is, therefore, expedient for the federal government to ensure prudent management of its loans. The culture of looting and relooting of the nation’s funds must be discarded if the Nigerian economy is to make a rebound; for now the sign is ominious.

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