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Nigeria Spends over 99% Revenue to Service Debts as Inflation Bites Harder

NGNigeria Spends over 99% Revenue to Service Debts as Inflation Bites Harder

• CBN’s overdraft gulps N1.2 trillion
• Revenue performance below 70 per cent
• Fiscal deficit hits N25.5 trillion in less than eight years
• Maturing debt fund account receives no allocation in nine months
• Inflation hits 22.79, far below experts’ projection
• Economists balk at NBS’ inflation reading, call for integrity test 

Nigeria’s grave fiscal position for the 2022 financial year became clearer yesterday, as latest data showed that of N4.26 trillion total revenue available for financing the 2022 budget in the first three quarters of last year, a colossal sum of N4.23 trillion went into debt financing.

The figure, contained in the budget performance report prepared by the Office of the Accountant General of the Federation (OAGF) and the Budget Office, has effectively raised the country’s debt service to revenue ratio to 99.2 per cent – the highest the country would record for a similar time horizon.

The figure is close to 10 percentage points higher than the estimated 80.6 per cent (covering January to November) captured in the 2023 budget document. The document said the Federal Government had spent N5.24 trillion servicing its debt obligations to different local and foreign creditors.

In the first four months of the year, the debt service to income ratio was over 100 per cent but the spike was cancelled subsequently.

Country Director of the World Bank, Shubham Chaudhuri, had warned that the proportion of government’s revenue going into debt service cost would continue to trend upward in the next five years and balloon to 160 per cent in 2027, unless radical reforms are taken.

The ratio spiked post-COVID-19, hitting 76 per cent in 2021. There have been concerns, but the government explains that its debt accumulation has been modest, except that revenues have failed to grow to match spending.

About 28 per cent of the debt service cost for the first three quarters or N1.2 trillion, according to the document released at the weekend, went to the controversial ways and means (W&M) facilities granted by the Central Bank of Nigeria (CBN).

Domestic debt gulped N2.15 trillion in servicing while N871 billion was provisioned for foreign debt in the nine months.

The actual cost of debt service was 41.9 per cent higher than the pro-rated estimate of N2.98 trillion captured in the approved budget.

In the 2022 budget, the government budgeted N292.7 billion for sinking funds to retire maturing debts. But for the first three quarters not a single naira remitted was put aside.

While debt funding was reasonably high and echoed sustainability questions, the government continued the borrowing spree, accumulating N3.41 trillion in fresh debt liabilities. About 85 per cent of the fresh loans or N2.9 trillion was sourced from the local debt market.

That reinforces the growing preference for the local market on one hand, and the shrinking international market on the other hand. With the interest rate currently at about five per cent in the United States market, the restrictive monetary regime is taking its toll across economies, with high-risk regions being the most affected.

Experts have warned that the rising recourse to the local market by the government for capital mobilisation would continue to crowd out critical private sector investments needed to create jobs and grow the economy.

As in the past few years, the revenue performance was about 70 per cent. Whereas the prorated revenue target was estimated at N6.18 trillion, only N4.25 trillion of 69 per cent was realised in the period, kneecapping the annualised income at N5.7 trillion.

Sadly, capital projects continued to get low attention with the total spending for the nine months amounting to N1.68 trillion. The figure is about 38 per cent less than the pro-rated budget of N2.7 trillion.

Unlike previous periods when the recurrent appropriation was overrun, in the first three quarters, the actual spending was 17 per cent short of the estimated N4.53 trillion.

The fiscal deficit stood at N2.6 trillion. From 2015 to 2021, the government accumulated a total of N22.94 trillion, according to The Guardian’s analysis of relevant data obtained from The Budget Office and OAGF. This puts the total fiscal deficit accumulated under ex-President Muhammadu Buhari’s administration at N25.5 trillion. Last year’s deficit was projected at N7.35 trillion.

“The price of crude oil in the international market averaged $99.49 per barrel in the third quarter of 2022, representing a decrease of $14.29 per barrel (12.56 per cent) from the $113.78 per barrel reported in the second quarter of 2022. The performance also reflects an increase of $27.09 per barrel (37.42 percent) and $26.49 per barrel (36.29 percent) when compared to the $72.40 per barrel recorded in the third quarter of 2021 and $73.0 budget benchmark, respectively.

“The increase in crude oil price during the period could be attributed to the Russia-Ukraine war and the impact of the numerous sanctions imposed by the United States and its allies against Russia which disrupted global oil production/supply. It was also influenced by the improvement in global economic activities after easing the different phases of COVID-19 lockdown,” the report said.

It added: “In the 2022 Fiscal Framework, gross federally collectible revenue is projected at ₦18.47 trillion, comprising ₦9.369 trillion (50.73 per cent) oil revenue and ₦9.1 trillion (49.27 per cent) other revenues. This translates to a prorate quarterly gross federally collectible revenue projection of ₦4.617 trillion for 2022. Gross oil revenue stood at ₦1.77 trillion in the third quarter of 2022. This translates to a ₦567.79 billion (24.24 per cent) shortfall when compared with the 2022 quarterly budget estimate. The performance was however ₦289.6 billion (19.5 percent) and ₦475.48 billion (36.6 per cent) above the ₦1.485 trillion and ₦1.299 trillion generated in the second quarter of 2022 and a corresponding period of 2021 respectively.”

Meanwhile, policy inconsistency is said to be responsible for the food-pulled inflation Nigeria is currently experiencing even as headline inflation stood at 22.79 per cent last month.

The figure is reasonably higher than 22.4 per cent recorded in May before the government pulled the plug on fuel subsidy payment but far behind projections. Experts, including the former Statistician General of the Federation, Yemi Kale, projected the inflation rate to spike to 30 per cent in June.

Analysts are wondering why inflation stood at 22.79 per cent despite the removal of subsidy on premium motor spirit (PMS) popularly. The removal resulted in a near 300 per cent hike in the pump price of fuel. Transportation costs have also increased by over 100 per cent in some cities. These were expected to have fed into the CPI data.

The inconsistency between the inflation figure and the spike in the price of fuel has integrity questions on the National Bureau of Statistics (NBS)’s reporting of the consumer price index (CPI).

Some economists have expressed doubt about the June 2023 inflation figures, citing escalating high cost of goods and transport.

The NBS was however quick to note that the June Consumer Price Index (CPI) numbers may not fully capture the impact of the fuel subsidy removal and the unification of the exchange rate.

“This is because the data collection for computing the rate for the reference month typically stops around the middle of the month, meaning that the June numbers only reflect approximately two weeks of the policy impact on consumer prices.

“The full effect of the policy as relates to prices can, therefore, not be reflected in June only, but also in subsequent months, based on actual prices collected in market outlets across the country”, the NBS added.

The NBS report showed that the headline inflation for June 2023 was 22.79 percent which is just 0.38 per cent higher than the May figure which was 22.41 per cent.

The economists, in separate telephone interviews, wondered how the NBS generated its figures given that the first shock of the fuel subsidy removal was felt in June with the prices of everything jumping over 100 per cent. They said an integrity test on its operation is necessary.

The Lead Director Centre for Social Justice (CSJ), Eze Onyekpere, though believes that the full impact of the fuel subsidy removal would be seen when the July inflation figures are published, said he could not understand how the figures are as low as published by NBS given the heavy depreciation of the naira.

“Yes, I agree that the subsidy removal hasn’t really taken a serious effect, yes prices shot up in quick reaction to the removal, but the full impact would be felt by July.

“But remember it was also that period when we announced the unification of our exchange rate regime, without first securing the sources of the foreign exchange. That is why you find the naira collapsing like a pack of cards.

“Ask yourself, if the official exchange rate moved from a little over N400 to now about N800, and given the fact that we import virtually everything, that will give you an idea of what the prices in the market are. So I don’t know how the NBS came about its figures,” he said.

He said it is easy for Nigeria to halt the escalating inflation if only the nation could focus on production of goods and services.

He noted: “We also need to fight insecurity so that farmers can go back to their farms and the rising food prices can come down.”

He said Nigeria also needs to increase its oil production level to earn more foreign exchange.

“I don’t understand why the Dangote refinery that was billed to start production in July has yet to take off. The government should direct the refinery to start production immediately to reduce our importation of fuel as that would save the nation a lot in foreign exchange,” he said.

Also speaking, the National President, the All Farmers Association of Nigeria (AFAN), Kabir Ibrahim, said the major problem was that Nigeria is a consumption nation, with little or no production.

“We are a consumption economy, we are not producing and the sooner we start production the better for us and the only way you can do it is to get the energy sector right. There is no level of investment in the energy sector that is too much. If we are able to reduce the cost of transportation of food items from the farms to the market, prices will come down,” he noted.

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