The Nigerian fiscal crisis

Late last week, the Honourable Minister of Finance, Budget and National Planning, Zainab Ahmed, presented the highlights of the 2022 approved federal budget, including highlights of the performance of the 2021 federal budget. The reaction of Nigerians to the presentation showed that we have lost the capacity to be shocked or to respond appropriately to the fiscal or other performance indicators of the regime of the President, Major General Muhammadu Buhari (retd.). This discourse will focus on the 2021 performance as a basis for the moderation of expectations in 2022.

According to the Honourable Minister, the Federal Government’s aggregate revenue between January and November 2021 was N5.51 trillion, amounting to 74% of the target. This calculation of the aggregate revenue is inclusive of the revenue of government-owned enterprises. The actual FGN retained revenue exclusive of GOE revenue is reported at N4.308 trillion. The distinction between the aggregate retained revenue, including GOE revenue, and the actual amount available for FGN expenditure is important because the former, which takes cognisance of GOE figures, is reported for the comprehensiveness of accounting as the difference between N5.51 trillion and N4.308 trillion, is not available for FGN’s payments of personnel, debt, overhead and capital expenditure. Thus, the revenue performance was 63.6% of the projected revenue for January to November 2021.

FGN’s share of oil revenue was N970.3 billion, which represents 53% performance of the prorated sum in the 2021 budget. This reported performance needs to be reconciled with the other reported fact that the budget’s oil benchmark price of $40 per barrel recorded an actual average of $79.3 per barrel during the reporting period. This is a positive difference of $39 per barrel. The production volume was projected at 1.86mbpd but averaged 1.56mbpd. Basic arithmetic shows that multiplying 1.56mbd by $79pb will give about $123.240m daily while multiplying 1.86mbd with $40 will give about $74.4m. Thus, the 53% performance cannot be true considering that there is no information on accruals to the Excess Crude Account. Even if the payment of actual fuel subsidy is factored into the equation, it cannot account for the FGN receiving only 53% of its projected oil revenue.

FGN share of non-oil tax revenues came up to N1.62 trillion, which is 118.8% above the target. Companies Income Tax and Value Added Tax collections were N718.58 billion and N360.56 billion, representing 115% and 165%, respectively, of the prorated targets for the period. Customs collections were N542.11 billion, representing 104% of the target. Prorated FGN independent revenue was exceeded by 13.4%. The foregoing performance of non-oil revenue is good news and should be replicated in 2022. The projection for electronic money transfer fees was N458.33 billion, but the meagre sum of N13.87 billion was reported as accruing revenue. Anyone living in Nigeria and who engages in banking transactions, knowing the quantum of deductions banks make on a daily basis for electronic money transfers, must doubt this figure. There is a clear revenue leakage here. The proceeds of previous years’ stamp duties are yet to be accounted for. Furthermore, revenue from solid minerals is reported at N3.15 billion. This is a cruel joke, as anyone with knowledge and understanding of the quantum of solid minerals available and being harnessed will appreciate this scam.

The expenditure result shows that N12.56 trillion, or 94.1%, has been spent out of the N13.57 trillion prorated budget. This performance is inclusive of expenditure estimates of the GOEs but exclusive of project-tied loans. N4.20 trillion was for debt service and N3.02 trillion for personnel costs, including pensions. “As of November 2021, N3.40 trillion had been expended for capital projects. Of this, N2.98 trillion represents 83% of the provision for MDAs’ capital, N369.9 billion for Multilateral/Bilateral Project-tied loans, and N49.52 billion as GOEs capital expenditure”. Beyond the announcement of the sum used for capital expenditure, the central poser is: where are the results of the capital expenditure in terms of new roads, improved security, reduction in maternal and child mortality, increased school enrollment and quality education, improved access to electricity and water, etc.? All these indicators have suffered retrogression during the outgone year. So, where is the value for money in this huge capital expenditure?

When the expenditure is juxtaposed with the revenue, a clear mismatch emerges. A revenue profile of N4.30 trillion and debt service expenditure of N4.20 trillion. This implies that FGN used 97.67% of its revenue to service debts leaving a balance of 2.33% for other governmental expenditures. All the other expenditures, from salaries to overheads and capital expenditure, came from a deficit and borrowed funds. Nigeria is simply broke and insolvent – a Federal Government that borrows to pay salaries of its personnel. A deficit of N5.911 trillion was projected for the period while the actual deficit was N7.052 being a variance of N1.140 trillion.
Considering the foregoing as the background to the approved 2022 federal budget, it should be clear to Nigerians that we are facing a fiscal crisis of unimaginable proportions. Specifically, we are faced with a debt crisis that requires us to use all our revenue to service existing debts. The authorities in the executive and legislature are in denial and the minister of finance would rather call it a revenue crisis to cover up the fiscal misadventure. If we borrowed over N6.6 trillion between January to November 2021 to fund a N14 trillion budget, we will need over N9 trillion in new borrowing to fund the N17 trillion 2022 federal budget. 2022 may likely witness a scenario where we may need to augment retained revenue with borrowed funds to be able to meet our debt service obligations. Common sense dictates that when one is digging a hole and is desirous of coming out of it, at a time he needs outside assistance to be pulled out, he will stop digging. FGN at the executive and legislative levels have a different idea, which is to keep digging, to keep borrowing. They have even gone ahead in the Finance Act of 2021 to expand the conditions for borrowing to include a nebulous term, viz “critical reforms of significant national impact.”
It is against this background that reasonable Nigerians are shocked at the level of the fiscal crisis and the fact that there is no escape plan in place. Rather, FGN is promising and planning to deepen the crisis. Political office holders are still voting humongous votes for their incredible lifestyles. Legislators are still inserting “empowerment votes’’ to be used in the 2023 elections. There is no one thinking through the implications of borrowing money for frivolities and its impact on future generations. I weep for Nigeria, a people who are not discerning enough to see and prevent obvious fiscal dangers by holding their leaders to account. We would all wait until the fiscal crisis gets neck-deep before contemplating action and remedies. We need to de-escalate this fiscal crisis before it metamorphoses into a monster that may attempt to depopulate our nation.