It is time to end fiscal recklessness in Nigeria to achieve better results for Nigerians
Nigeria’s fiscal situation is dire. A combination of poor financial management, over-dependence on volatile oil revenues, inconsistent monetary policy, and a disregard for legal frameworks aimed at preserving good financial practices has led to a decline in the country’s macro-fiscal indicators. Data from the IMF’s World Economic Outlook show that revenue as a percentage of GDP fell from 10.9% in 2014 to 8.6% in 2022 despite an increase in oil prices, averaging $100 per barrel, in the same year.
The Nigerian government has long been criticized for its underwhelming revenue performance, largely due to its reliance on unpredictable oil revenues and the absence of a robust and diversified tax base. Moreover, the government’s poorly targeted use of tax incentives, which it rarely assesses or reports, also constrains its revenue. Although the law requires the reporting of tax incentives, Nigeria has only fulfilled this requirement once, in 2019, when it was revealed that 1.2 trillion Naira ($2.7 billion) was granted as Company Income Tax waivers, nearly double the amount planned for education that same year.
In recent years, Nigeria has run huge fiscal deficits. In the last four years, the government did not achieve up to 80% of its planned revenue, despite an increase in oil prices in 2022. With rising and unsustainable debt burdens and the projected slowdown in global economic growth, Nigeria’s budget for 2023 will result in the largest deficit in its democratic history, constituting half of the entire budget and more than double what it was in the 2020 budget during the COVID-19 pandemic.
To fund its deficits, Nigeria relies on new borrowings, with nearly half of the 2023 budget to be raised through fresh borrowing, 80% of which will be sourced domestically. This is worrisome as it will crowd out credits to the private sector and limit private investments in the economy. Additionally, the Nigerian government has normalized spending a large chunk of its revenue on debt repayment. In 2022, more than 80% of actual federal revenues were spent on debt servicing. This year, 30% of the budget will be spent servicing its debt – more than double the combined spending on agriculture, education and health. Given the government’s history of overstating expected revenues, the actual proportion of revenue spent on debt will likely be much larger. It is no surprise that Moody’s, an international credit rating agency, recently downgraded Nigeria’s debts on the expectation that the government’s fiscal and debt position will continue to deteriorate.
Nigeria’s economic future is at a crossroad. The Debt Management Office has warned that the country’s debt stock may reach a staggering 77 trillion Naira ($176.8 billion) in 2023, if the 23.7 trillion Naira ($54 billion) borrowings from the Central Bank is taken into account. This borrowing from the Central Bank, which is done through an overdraft facility known as the Ways and Means Advance, has severely exceeded the legal limit and is exacerbating inflationary pressures in the economy. According to the law, the outstanding balance should not surpass 5% of the previous year’s actual federal government revenue – 231 billion Naira ($531 million).
Unfortunately, at the end of 2022, the balance was more than 100 times the actual revenue earned in 2021.
In addition to this financial recklessness, Nigeria is facing another challenge – inadequate spending on critical areas such as human capital development, infrastructure, and social protection. Despite the federal budget more than doubling over the past five years to 21.8 trillion Naira ($50.1 billion) in 2023, the standard of living for Nigerians has not improved, with more than six in 10 being multidimensionally poor.
Given the current state of affairs, it is imperative that the next administration takes decisive actions to restore fiscal sustainability. The new government must prioritize non-oil revenue generation by broadening the tax base, eliminating revenue leakages, and reducing tax administration costs. Additionally, spending must be prioritized in areas that have the potential to bring transformative change, such as agriculture, health, education, transport systems, energy, and social protection. Finally, institutions must be strengthened to ensure fiscal responsibility and improve spending efficiency. Only by taking these bold steps can Nigeria hope to secure a prosperous future for its citizens.
As Nigerians head to the polls, it is critical that they elect leaders with a track record of fiscal responsibility, visionary but practical plans to turn the economy around, and the political will to put these plans into action. The outcome of this election will shape the future of Nigeria. Therefore, the electorates must exercise their voting right with the understanding that every vote cast is a vote for the recovery of the economy, its socio-political stability, and the general well-being of its citizens.
Gbemisola Joel-Osoba is an Economist at The ONE Campaign and writes from Abuja; Stanley Achonu is the Nigeria Country Director at The ONE Campaign and writes from Abuja.