By Chinwendu Obienyi
There are strong indications that Nigeria is fast heading to bankcrupcy after its cost of debt servicing surpassed the government’s revenue in the first quarter of 2022 even as its fiscal position worsened in the first four months.
According to details of the 2022 fiscal performance report for January through April, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.
The report showed that gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39 per cent performance.
Despite higher oil prices, the report showed that government revenue underperformed due to significant oil production shortfalls exacerbated by shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost arising from higher landing costs of imported refined products.
However, non-oil taxes trailed targets marginally, with average performance of 92.6 per cent.
“Revenue performance is expected to improve in the second half of 2022 as a result of concerted efforts to address the oil theft and pipeline vandalism. It added that there is also seasonality to some of the non-oil taxes, which means that the nation expects to collect significantly more in the second half of the year. The improved revenue collection should also moderate the debt service to a revenue ratio, that is currently above our target level,” the report said.
The report noted that for Nigeria, “fiscal risks are somewhat elevated”, following weaker-than-expected domestic economic performance and structural issues in the domestic economy. It warned that revenue generation remains the major fiscal constraint of the nation and the systemic resource mobilisation problem has been compounded by recent economic recessions.
According to analysts, the underlying factors responsible for the downturns included the Russia and Ukraine war, which assumed a new and worrisome dimension with severe implications on food and energy prices.
They also attributed the resurgence of COVID-19 in some major economies, leading to slowdowns in economic activities in those countries; as well as renewed elevated inflation in most economies, prompting monetary policy tightening in these economies with the inherent negative impact on capital inflow to emerging markets economies.
Reacting to the development, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed warned that urgent actions were required to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.
However, in a virtual interactive forum in Lagos, the Chief Executive Officer, Cowry Asset Management, Johnson Chukwu, noted that the government must look beyond agriculture and focus on key sectors including manufacturing, ICT and trade to reset the nation’s economic growth.
“The problem is that in the first place, the government is borrowing to meet recurrent expenditure and it is also borrowing for capital expenditure. So, a significant portion of our current borrowing is going to recurrent expenditure and it simply means our borrowing cannot be reflected in capital assets. You are borrowing to meet recurrent expenditure and debt service. As long as that is the case, we will continue to accumulate debt. This is the time to look towards the ICT sector which has been our biggest contributor to GDP. This is the new digital economy and the government must build on it”, He said.
For their part, analysts at Cordros Securities, said, “At this run rate, the fiscal deficit would settle at N9.27 trillion by year end which is 5.0 per cent shy of our base case expectation (N9.74 trillion) as highlighted in our H2, 2022 domestic macroeconomic outlook. Accordingly, we envisage increased domestic borrowing and reliance on the CBN’s Ways & Means (W&M) as external borrowing conditions are presently unfavourable.
While we do not rule out the possibility of a few major reforms in the remaining 10 months of the present administration, we believe the baseline set for GDP growth and other macroeconomic variables in the MTEF & FSP strategy document would only be realised if the next administration tackled legacy challenges headlong”.
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