Disquiet as debts, low revenue usher Nigeria into new year

• Govt’s deficits exceed N1trillion in nine months
• Recurrent expenditure, borrowing costs to jolt economy
• ‘Information minister not well informed on debts’

A Financial blow stares Nigeria in the face in 2020. No thanks to the sombre mix of an $83 billion debt; rising recurrent expenditure; increased cost of debt servicing; sustained fall in revenue; and about $22 billion debt plan waiting for legislative approval. Things could even get worse if anticipated punches from the global economy – like Brexit, the United States-China trade war, and interest rate policy of the Federal Reserve Bank hit below the belt.

The nation’s debt stock, currently at $83billion, with huge debt service provision in excess of N2.3 trillion in 2019, is set to rise in 2020 by about $22 billion as the National Assembly looks into the debt plans.The culprit is the country’s revenue challenge, which has remained non-responsive in the last five years, even as borrowings persist: this indicates the economy has been primed for recurring tough outcomes.

The newly appointed chairman of the Federal Inland Revenue Service, Muhammad Nami, reportedly lamented the revenue shortfall, particularly from the agency, after several acclaimed initiatives aimed at ramping up inflows. He was quoted as saying: “Despite the rise in the service’s workforce, the engagement of consultants, the rise in inflation and the exchange rates, the tax revenue collection continues to dwindle.”

During the 2019 fiscal year, despite claims of improvements in revenue flows, the Federal Government recorded hundreds of billions in budgetary shortfalls in all the quarters, with November alone logging N218.05 billion. Data from the nation’s quarterly economic report shows that the revenue crisis is not getting any better. It notes that in the three quarters ending September 30, 2019, the Federal Government recorded a deficit in excess of N1trillion.

An analysis of the report of the Federal Government’s 2018 budget performance shows that the government spent N7.51 trillion based on a total revenue of N3.86 trillion, creating a deficit of N3.64 trillion, an indication that all is yet to be well.The civic-tech organisation, BudgIT, noted that while government planned to earn N7.16 trillion in 2018, it was only able to amass N3.85 trillion, which represents 54 per cent revenue performance.

According to the BudgIT’s examination, the government is also spending more on debt servicing even as its debt profile skyrockets simultaneously. Although it recorded revenue of N3.86 trillion, the Federal Government spent N5.86 trillion on recurrent expenditure, meaning that N2 trillion was borrowed to fund recurrent expenses.

“In 2018, the Federal Government spent N2.09 trillion on servicing public debts, a figure that grew from N1.63 trillion in 2017. As it is, the Federal Government is spending so much on servicing debts, while it plans to even borrow more. The government borrowed a total of N1.74 trillion in 2018, yet, the sources for additional deficit (borrowing) of N1.9 trillion were not stated in its report,” it said.

BudgIT Principal Lead, Gabriel Okeowo, stressed the need for details of government’s expenditures for proper verification and public accountability. “While we wonder why other financing sources are not explained by the government, it is clear that Nigeria has a huge revenue problem and the current pace of recurrent expenditure growth (mainly salaries and debt servicing) is not sustainable,” he said.

For an economist, Ucha Wagbo, Minister of Information Lai Mohammed is just reechoing the position, which Minister of Finance Zainab Ahmed and former Minister of Budget Udo Udoma ,left for him.He said: “The rhetoric that our total borrowing rate is just under 50 per cent of our Gross Domestic Product (GDP) and that the multilateral institutions projected a country like ours to borrow from 50 to 55 per cent of the GDP are lame excuses.

“Are the multilateral institutions not the ones telling us now to mind how we borrow? Will the 50 per cent borrowing pay our debts if the proceeds are wasted on frivolities? “What does he understand as debt crisis? Is it when the country cannot pay at all? If you service your debt with a quarter of your total budget or use more than 60% of your income to service debt, are you better off?

“The minister is just making a blind support for the administration. He once complained of huge debt against Jonathan’s administration when it was less than $60 billion and now it is $83 billion and he is calling Nigerians ‘scaremongers’. I don’t think he is well informed on the debt issues. The truth is that Nigeria has a debt problem and 2020 will be challenging.”

While presenting the 2019 scorecard of the President Muhammadu Buhari administration on Monday, Lai Mohammed had stated: “There is yet no cause for alarm. This is because Nigeria has a debt ceiling of 25 percent in the total public debt stock to Gross Domestic Product (Debt/GDP), which it has operated within. The ratio for December 31, 2018 and June 30, 2019 were 19.09 per cent and 18.99 per cent respectively.”

Similarly, government’s recurrent expenditure, which has been on the rise in the last four years, will distort government’s economic projections further in 2020, as the new minimum wage adds to huge costs associated with governance.While the recurrent expenditure shot up to N5.39 trillion in 2018, representing N800 billion growth in one year without new minimum wage implementation, just in November 2019, the Federal Government spent 95.9 per cent of its resources on statutory transfers (7.2 per cent) and recurrent expenditure (88.7 per cent), leaving only 4.1 per cent for capital projects.

The Federal Government’s personnel costs rose from N1.8 trillion in 2017 to N2.1 trillion in 2018, without the full implementation of the new minimum wage plan.A fiscal governance expert, Eze Onyekpere, said this administration had unresolved contradictions between its mantra of cutting down waste, improving efficiencies and removing ghost workers from the payroll and the rising recurrent non-debt expenditure.

According to him, “Actual recurrent non-debt expenditure was N2.51 trillion in 2016; N2.76 trillion in 2017; and N3.103 trillion in 2018. For the half year in 2019, it has reached N2.05 trillion, which is 21 per cent more than the pro-rated value of recurrent non-debt expenditure in the 2019 budget. “This increment to N4.88trillion in 2020 cannot be the sign of a system that is taking steps to remove waste and inefficiencies. Even though a new minimum wage is kicking in, efforts should be made to reduce the cost of governance through the implementation of fit and good practices.”

Raising concern on the country’s debt sojourn, he said the rising debt service was crowding out expenditure in critical infrastructure and human development. “If there is a shortfall in revenue, salaries, and overheads will be drawn down, debts will be serviced, but capital projects will suffer. How will Nigeria be better like this? What is the basis for hope in 2020?” he queried.

The Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, said there were expectations that the country’s debt profile would move upwards in 2020 following (a) approval of $3 billion credit facility from the World Bank for power sector reforms, (b) possible ratification of $29.96 billion loan request for infrastructural development, (c) wider fiscal deficit (2020: N2.7trillion; 2019:N2.1trillion), and (d) increased appetite for government securities by institutional investors following their exclusion from OMO.

He, however, noted that the rising indebtedness of the economy calls for concern as increased debt stock failed to stimulate neither growth nor infrastructural development. Given Nigeria’s revenue challenges, the country will continue to spend a large chunk of its earnings to service debt.

“The opportunity cost of high debt service commitment for the economy and citizens is very high. There is also the exchange rate risk inherent in the exposure to mounting foreign debt, which we need to worry about. As the currency depreciates, the burden of servicing foreign debt would intensify. This is a major problem with increasing the stock of foreign debt,” he added.