Nigeria sinking deeper into a debt hole

CONVENTIONAL wisdom dictates that you cannot get out of a hole by digging deeper. This is exactly what the Federal Government is doing with the N6.2 trillion supplementary budget approved by the Senate on Tuesday.

This addition brings the 2024 budget to N35.05 trillion, up from N28.7 trillion initially approved. President Bola Tinubu sought approval from the National Assembly last week to raise the budget figure to provide an additional N3.2 trillion for certain infrastructure projects and N3 trillion for the new minimum wage.

The Chairman of the Senate Committee on Appropriations, Olamilekan Adeola (APC, Ogun West), said that the increase would be financed with the one-time windfall tax on banks’ forex profits for 2023 as approved by NASS.

While the government has presented justification for the additional expenses, the supplementary appropriation raised concerns about Nigeria’s worsening debt situation. The Tinubu administration passed a supplementary budget of N2.7 trillion last year.

The Debt Management Office stated that the country’s total public debt has increased significantly to N121.67 trillion (approximately $91.46 billion) as of March, up from N97.34 trillion in December. This rise is attributed to new borrowings to fund the 2024 budget deficit and the securitisation of a portion of the N7.3 trillion Ways and Means Advances with the CBN. The debt-to-GDP ratio surpassed 50 per cent for the first time since 1991.

The 2024 budget was predicated on a total expenditure of N28.78 trillion with a projected revenue of N19.7 trillion, implying a budget deficit of N10 trillion. The supplementary budget will widen this deficit since the windfall tax on bank forex gains is still uncertain.

The fresh appropriation will be funded by borrowing, despite what the government says. This will increase already high debt servicing obligations.

Nigeria spent N7.8 trillion to service its debt obligations in 2023, a 121 per cent increase compared to N3.52 trillion in the previous year.

A recent report by PwC Nigeria projected that debt service could rise from N8.25 trillion in 2024 to N9.3 trillion in 2025 and N11.1 trillion in 2026, which may affect the country’s debt servicing ability, credit rating outlook, and borrowing cost.

This year alone, the CBN has raised about N2.05 trillion through Treasury Bill auctions, while the DMO raised over N2 trillion from bond auctions. The Federal Government is seeking $1 billion from the World Bank and a Eurobond issue later in the year.

Budget deficits are dangerous to the economy because they result in increased national debt, high-interest payments, low national spending, high taxation, and worsen the already high inflationary trend. Nigeria needs to generate more revenues from within.

Part of the problem is the defective tax structure, which overtaxes the poor while the wealthy fail to pay appropriate taxes. Compliance is weak, default rates are high. Nigeria’s tax-to-GDP ratio, at 10.8 per cent, is below the African average of 16.5 per cent and one of the lowest in the world. The fiscal and tax reforms proposed by the Taiwo Oyedele committee, which addresses these anomalies, should be implemented immediately.

Increasing crude oil revenues by stopping oil theft and sundry leakages will add at least $6 billion annually to the treasury.

The government needs to reduce the cost of governance by containing the culture of waste and extravagance, which has been its hallmark. Expectations were that the Tinubu administration would have implemented the Steve Oronsaye report, which recommended streamlining the MDAs for effectiveness and to save costs. The government operates over 1,300 MDAs including foreign missions, which are not properly funded.

Nigeria will be left much worse off if this borrowing spree and budgetary deficit expansion trend are not curtailed.