Nigeria’s Fiscal Position; a Revenue or Debt Problem?

January 7, 2022/Coronation Research

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Based on a Punch news report, the Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed on Wednesday during the public presentation of the details of the 2022 Appropriation Bill that it spent N4.2tn on debt servicing between January and November 2021. This sum represents 76.2% of the N5.51tn revenue generated during the period under review. According to the report, the Minister also noted that oil revenue contributed N970.3bn to the total revenue generated within the period, while non-oil tax contributed N1.6tn. Other revenues amounted to N2.8tn.

Speaking of expenditure, she noted that the government spent N12.56tn out of the N13.57tn prorated budget within the review period. The total expenditure constitutes N4.20tn spent on debt servicing, N3.02tn on personnel cost, including pensions, and N3.2tn expended on capital projects. She, however, stressed that the figures for 2021 were provisional and, as such, subject to updates and reconciliation. While defending government borrowing and the country’s debt level, the minister insisted the country had a revenue challenge and not a debt problem, adding that the debt level was still within sustainable limits. According to her, having witnessed two economic recessions in the country had to spend its way out of recession, which contributed significantly to the growth in the public debt.

Nigeria’s total public debt came to N38.0tn at the end of September 2021, with external debt making up 40.98% and domestic debt making up 59.02%. The increase of N2.5tn, when compared with the corresponding figure of N35.5 trillion at the end of Q2 2021, was largely accounted for by the US$4bn Eurobonds issued by the Government in September 2021. Despite the increasing debt stock and debt service payments, the House of Representatives, on Tuesday, approved external borrowings totalling US$5.8bn and a grant of $10m for the Federal Government as part of the proposed 2018–2020 External Borrowing Plan.

But for the composition of our expenditure, we would have agreed with the Minister of Finance that the country’s problem is mainly a revenue problem. However, the significantly higher recurrent component of the budget continues to drag the nation’s economic growth, resulting in poor infrastructural development. Spending more on capital projects can promote industrialization, improve local purchasing power, and help the federal government’s diversification drive. Nigeria continues to face issues of poor revenue generation and a lack of will to efficiently manage its expenditure. No significant cuts have been made to its overheads, and statutory spending has continued to rise. The growing debt stock with little to show for it in terms of capital expenditure remains a major concern.

While we agree that the relatively low debt to GDP ratio, which she noted was at 30% as of November 2021 remains significantly below the Sub-Saharan Africa level of 58% and below the 40% limit set by the Debt Management Office, we note that the government’s interest payments continue to absorb a large share of federal government revenues, making the otherwise low debt-to-GDP ratio highly vulnerable to shocks.

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