Nigeria’s fiscal crisis

Last month, the budget office of the federation released the 2017 budget implementation report. According to the report, the federal government’s revenue for 2017 was N2.7 trillion, about half of its projected revenues for the year and 36 percent or one third of its projected expenditure of N7.44 trillion. Faced with the sharp fall in revenues, the government had to cut its expenditure to N6.5 trillion in 2017.

The government spent almost a trillion naira less than it planned to spend in 2017 but the final N6.5 trillion spent was still N3.8 trillion more than the federal government’s total revenues for the year. To fund the deficit, the government had to borrow a total of N2.5 trillion to help fund its financial obligations for the year. The government borrowed N1.2 trillion from the international capital markets and borrowed the balance of N1.3 trillion from the domestic capital markets, an amount that is more than the net increase in lending to the private sector in 2017 from financial institutions. The government got about three times more money from the banks than the private sector got from the banks.

However, the N2.5 trillion that the government borrowed from the banks to fund its deficit was not enough to plug the N3.8 trillion it created spending more than it earned in revenues in the year. This has left the government with a N1.3 trillion hole that it could not close in 2017. This means that there are some contractors sitting out there that have done jobs for the federal government that have not been paid and do not know when they will be paid or if they will ever be paid. The government obviously could not raise the money to pay these contractors. It could have taken on more loans to pay these contractors but apparently felt it was already too over burdened with debts to take on more loans. Contractor debts do not attract interest rates and the government can usually take its time repaying even though the businesses owed tend to suffer, with some collapsing while waiting to be paid for jobs duly executed.

But the government has a reason to be concerned about its debts that keep piling up. As at the end of December 2017, the country’s total debt stock stood at N22 trillion, which is the equivalent of US$71 billion, data from the Budget Office show. The debt stock went up by US$4.4 billion or N1.4 trillion in 2017. A breakdown of the debt shows that US$18.9 billion is owed to external lenders while the balance of N15.9 trillion is owed to domestic creditors. Already, the federal government has exceeded its own target of ensuring that the country’s total debts do not exceed 19.39 percent of economic output or GDP in any year. When the government closed its books in 2017, country’s total debt stood at 20.12 percent of GDP.

However, what would have given the government more concern is the rising debt service burden which is beginning to eat up two thirds of government revenues. Debt service consumed a total of N1.8 trillion in 2017. This represents 75 percent of the government actual revenues in 2017. The government is spending an average of eighty kobo of every one naira it earns servicing the debts it is accumulating. The amount spent on debt service is higher than the N1.6 trillion released for capital expenditure in 2017, of which N1.4 trillion was the amount actually utilized. The country is now spending more money servicing debts than putting in place the infrastructure that will help grow the economy to repay those debts.

This is enough to set off alarm bells, but there seem to be a conspiracy of silence. Yet the government has continued to borrow. The federal government is currently seeking a fresh $6 billion from the China Exim Bank for the construction of the Ibadan-Kano rail line. At the current rate, Nigeria may be unable to service its debt in the near future and we would be fully back to the debt trap that we exited in 2005.