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

Friday, January07, 2022 / 12:32 PM / by CSL Research / Header Image Credit: Federal Ministry of Finance

Based on a Punch news report, the Minister of Finance,Budget and National Planning, Zainab Ahmed, disclosed on Wednesday during thepublic presentation of the details of the 2022 Appropriation Bill that it spentN4.2tn on debt servicing between January and November 2021. This sum represents76.2% of the N5.51tn revenue generated during the period under review.According to the report, the Minister also noted that oil revenue contributedN970.3bn to the total revenue generated within the period, while non-oil taxcontributed N1.6tn. Other revenues amounted to N2.8tn.

Speaking of expenditure, she noted that the governmentspent 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 onpersonnel 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 andthe country's debt level, the minister insisted the country had a revenuechallenge and not a debt problem, adding that the debt level was still withinsustainable limits. According to her, having witnessed two economic recessionsin the country had to spend its way out of recession, which contributedsignificantly to the growth in the public debt.

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

But for the composition of our expenditure, we wouldhave agreed with the Minister of Finance that the country's problem is mainly arevenue problem. However, the significantly higher recurrent component of thebudget continues to drag the nation's economic growth, resulting in poorinfrastructural development. Spending more on capital projects can promoteindustrialization, improve local purchasing power, and help the federalgovernment's diversification drive. Nigeria continues to face issues of poorrevenue generation and a lack of will to efficiently manage its expenditure. Nosignificant cuts have been made to its overheads, and statutory spending hascontinued to rise. The growing debt stock with little to show for it in termsof capital expenditure remains a major concern.

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