The Minister of Finance, Budget and National Planning, Zainab Ahmed, recently revealed that Nigeria’s debt services cost exceeded its revenue in the first four months of 2022 . Also, debt servicing gulped N1.94 trillion between January and April, 2022, as against the retained revenue pegged at N1.63trillion for the same period under review. In other words, debt services surpassed retained revenue by N310 billion within the period. This is probably the first time Nigeria’s debt service to revenue ratio would exceed 100 percent.
The startling disclosure was contained in the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF & FSP) presented by the Finance Minister. The minister reiterated that significant action was required to address revenue underperformance and expenditure efficiency at both national and sub-national levels. The report showed that retained revenue was 51 per cent short of the projected target of N3.32 trillion for the four months as contained in the 2022 Appropriation Act. Also, the actual total expenditure for the period was less than the estimated pro-rated spending, but with a smaller margin in the case of revenue performance.
According to the report, the government spent N4.72trillion, which was about 4/5 of the N5.77trillion spending estimate for the four months period. This translates to about 190 per cent higher than the earned revenue. Debt servicing took as much as 41 per cent of the total spending, while personnel cost (including pensions) was N1.26trillion or 27 per cent, leaving a paltry N773.6billion or 16 per cent for capital expenditure.
Arising from the report, the amount incurred on debt servicing exceeded policymakers’ projections based on previous records. Last year’s debt servicing to revenue ratio was 96 per cent. The Federal Government’s share of oil revenue was N285.38billion, while the Company Income Tax (CIT) and Value Added Tax(VAT) generated N298billion and N102.97billion, respectively.
The government also admitted that its revenue target was constrained in months by the underperformance of oil due to a decline in production capacity caused by crude oil theft and pipelines vandalism, among other factors, in spite of the rise in the price of oil in the international market. For instance, while the targeted oil production was put at 1.6 million barrels per day, the average output as of April 2022 was 1.32 million barrels per day. Based on the foregoing, it is clear that the nation’s level of borrowing is unsustainable. That is why it has become imperative to diversify the economy and reduce the overdependence on crude oil revenue. It has been projected by experts that it will take the federal government about 8 years to pay the existing N36.78trillion debt , which is about 88 percent of the over N41trillion national debt stock. According to them, that can only happen, if the government saves 100 percent of its total earnings at the current value, a proposition that is most unlikely.
Besides, if the outstanding N19.14trillion overdrafts and advances government owes the Central Bank of Nigeria are factored in, it will take government almost 12 years to complete the repayment of the debts. According to the Debt Management Office (DMO), Nigeria’s total outstanding debt as of March 31, 2022, was $100.7billion. The federal and state governments’ debts stand at N60.7trillion. It is quite inexplicable how the nation’s debt rose from N12trillion inherited by this administration in 2015, to the present debt profile of about N42trillion as of April 2022. The amount is 83.9 percent of the country’s real Gross Domestic Product (GDP) put at N72.39trillion last year.
Against the global GDP ratio, which has risen to 263 per cent, Nigeria’s elevated debt-service cost is unlikely to impact credit risk downgrade, as the World Bank’s forecast has indicated, but with surging inflation and depreciation of the national currency, some global rating agencies have projected that Nigeria’s debt service problem could affect investors’ interest in the economy. Added to that, agriculture and solid minerals, the main drivers of the GDP, are not fully exploited as a result of rising insecurity across the country. The government must strive to prevent the looming acute fiscal crisis by improving its revenue performance in the second half (H2) of the year.
