Nigeria’s economy is hurting with ballooning debt stock as federal government failed to halt revenue leakages and drive the fourth industrial revolution. This has resulted in sustained revenue miss – from oil export receipt to weak contribution from the non-oil sector.
Apart from oil export, Africa’s largest economy produces nothing to improve income but few unprocessed agricultural produce.
By the end of the present administration, total public debt could become a burden to economic growth and prosperity, especially, if fiscal slippage or government persistent revenue miss continues.
While there is angst about the nation’s high leverage position, Nigeria’s debt profile has not peaked as of the end of August as sustained fiscal slippage signals that Federal Government will further ramp up borrowings to meet its financing needs.
As of the first quarter of the fiscal year 2022, Nigeria’s total public debt printed at N41.6 trillion, according to Debt Management Office’s report, though the agency still believes leverage position is sustainable.
Consistently, the debt office warns that government must improve revenue generation to meet short-term obligations. Debt servicing costs are often near total income generated per quarter, on some occasions – a pattern that has repeatedly occurred amidst worsening oil production volume despite strong crude prices.
The total public debt of N41.6 trillion announced excludes the unsecuritised sum of N20 trillion owed to the Central Bank of Nigeria, the nation’s lender of last resort via Ways & Means – which analysts consider to be in breach of the CBN Act 2007.
The Act says, “The total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”.
In its monthly economic report, CBN revealed that the FGN’s retained revenue declined by 7.2% month on month to N387.93 billion in May from N417.96 billion in April.
This confirms positively with reported data from the finance ministry, however FG recourse to overdraft from the apex bank due to a need to meet short-term obligations.
The reported decline in total revenue accrued to the Nigerian government was primarily driven by a persistent shortfall in inflow from the Federation account. FAAC allocation slowed down 11.8% month on month as a result of lower net oil and gas revenue, according to Cordros Capital analysts.
In the period, aggregate expenditure declined by 14.0 to N912.18 billion from N1.06 trillion in April, given a 3.4% and 46.8% decline in recurrent and capital expenditure, respectively.
Consequently, Cordros Capital analysts stated that the provisional fiscal deficit which settled at N524.25 billion as against the pro-rated budget of N532.17 billion reduced by 18.5% compared to N643.09 billion in April.
Cordros Capital analysts said they envisage increased domestic borrowing and reliance on the CBN’s Ways & Means as external borrowing conditions are presently unfavourable.
Citing data from the CBN, analysts wrote that the actual way and means as of seven months in 2022 was N3.15 trillion. Total overdraft to Federal Government through the Ways and Means Advances surged from N4.34 trillion last year to N17.45 trillion in December.
Short-term benchmark interest rates rose to double-digit highs as the liquidity profile in the financial markets weakened further. There have been renewed pressures on liquidity in the financial system, worsened by debits for primary market auctions.