ECONOMY - 15 OCT 2018

Nigeria is going broke.

The Nigerian government has a serious revenue problem. In 2017, Federal Government (FG) revenue was ₦2.7 trillion, the lowest in seven years. Meanwhile, revenue as a percentage of GDP has steadily declined from 3.6% in 2014 to 2.3% in 2017.

Unsurprisingly, oil revenues have fallen—by 36% in the last six years, reflecting the post-2014 crash in global oil prices and intermittent militancy in the Niger Delta that affects Nigeria’s oil production. But despite government promises to beef up non-oil revenues, they have remained sticky, rising by just ₦340 billion in six years.

Even as revenue has declined, government spending has skyrocketed, growing by 56% since 2012 and as much as 26% between 2016 and 2017 alone.

Spending has not been particularly efficient either; Nigeria spends more on salaries and servicing debt than on capital projects—even in 2017 when capital expenditure was at a record high.


Personnel costs haven’t changed much in recent years—again, despite government promises—and even consume a greater share of what the government earns. In 2013, half of what the government earned was committed to salaries; by 2017, that number was 70%. And of course, as global crude oil prices rise, Nigeria spends more and more on wasteful fuel subsidies.

It is important to note here that the Nigerian government doesn’t spend that much compared to its peers. FG spending was just 5.6% of GDP in 2017, compared to 13.4% and 20.9% in Angola and South Africa respectively, according to the World Bank. The issue is that the government doesn’t earn much money, meaning that even the little spending that is done seems reckless.

Has the FG allowed revenues to constrain it? No.

Instead, it has borrowed more and more as policy-makers decided that they would borrow and spend Nigeria out of the 2016 recession. Last year, the government borrowed more than it earned. As a result, our national debt has ballooned, nearly tripling between 2012 and 2017 from ₦7.5 trillion to ₦21.7 trillion.

Part of the reason is that we have borrowed more from abroad in recent times, increasing our external debt from ₦2.1 trillion in 2015 to ₦5.8 trillion in 2017.

In 2017 alone, the FG raised $4.5 billion in 10 to 30-year Eurobonds. Listen to the Debt Management Office (DMO) or the Central Bank of Nigeria (CBN), and it would defend this foreign borrowing by pointing to lower interest rates available abroad, and the fact that when the government borrows locally, commercial banks are discouraged from lending to individuals and businesses.

But, any currency depreciation will bloat the value of these liabilities, and it is no surprise to see that our debt-GDP ratio has doubled to 19% between 2012 and 2017.

This surge in debt has come even though the economy was only officially in a recession in 2016; it has barely grown in the last four years, meaning that Nigeria is not becoming more productive or increasing its capacity to repay these debts.

Unsurprisingly, the cost of servicing our debts have gone up significantly. The government was spending 22% of what it earned on debt repayments in 2012.

Last year, it spent 62%. So, for every naira the government earned, at least 60 kobo was earmarked just to service its debt. Meanwhile, the threshold set by our debt management office is 28%.

All this spending and borrowing is unsustainable if revenue does not increase soon. Higher oil prices may offer us some form of reprieve, but a better way of boosting oil revenues is by altering the terms of the government’s revenue sharing model with oil majors. However, the bill that aims to do this—the Petroleum Industry Fiscal Bill—has been sitting in the National Assembly for over a decade.

Increasing non-oil revenues is equally tricky. The Voluntary Assets & Income Declaration Scheme (VAIDS), a tax amnesty program the government hoped would encourage people to pay taxes, was a flop, only raising ₦30 billion of a ₦300 billion target.

Still, an increase in the tax base from 14 million people to 19 million people may be a silver lining. Increasing tax revenues will be challenging in Nigeria; it can only be done if the government can win the trust of the people.

There are no signs to suggest that we have figured out how to solve our revenue problem, meaning that the government will either grow increasingly impotent as the population increases—and more needs to be spent—or it will continue to borrow until Nigeria enters a debt crisis.

What might that look like? Best case: Greece. Worst case: Zimbabwe.

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