Agusto & Co: Nigeria’s Debt Rose Steeply by 226% to N39.56trn in 7 years,

Nume Ekeghe

With analysts in the financial service sector impressing it on the federal government to slow down on its borrowing bing, it has emerged that Nigeria’s debt rose steeply by a whooping 226 per cent In seven years.

In a report, analysts at Agusto & Co. summed Nigeria’s debt burden since the beginning of President Muhammadu Buhari’s administration to have risen by 226 per cent to N39.56 trillion as at December 2021, a massive leap from N12.5 trillion in June 2015. 

Agusto & Co. highlighted this in its May 2022 economic newsletter titled, “Fiscal Consolidation and Debt Sustainability- Beyond the Rhetoric.”
Agusto & Co. urged the electorate to question how the next administration intends to approach fiscal consolidation and debt sustainability in the face of revenue constraints.

It stated: “The last seven years have seen Nigeria’s public debt burden skyrocket with minimal investments in infrastructure to show for it. While the Federal Government of Nigeria’s capital expenditure averaged N1.6 trillion ($3.85 billion at N415/$) over the last seven years, it has lagged behind both budgeted levels and the amount required to close the infrastructure gap estimated at $150 billion annually over the next 30 years.

“It also pales in significance when compared with its regional peers. However, during the same period, total public debt has soared by a staggering 226 per cent to N39.56 trillion in December 2021, up from N12.5 trillion in June 2015.”

It emphasised that a bloated wage bill and interest payments cumulatively 114 per cent of FGN revenue in 2021 continue to consume a substantial portion of the nation’s finances. 

It added, “For more context, Nigeria spent more on non-debt recurrent expenditure in 2021 approximately N5 trillion, than its estimated revenue of N4.39 trillion within the period. This implies that it had to borrow to meet a considerable part of the public sector wage bill and its actual capital expenditure in 2021 is estimated at N3.7 trillion. Revenue growth has been significantly outpaced by the rise in expenditure. The fiscal deficit-to-GDP ratio of 6.3 per cent in 2021 has now exceeded its 3 per cent threshold over the past 5 years. The country’s revenue troubles have also been exacerbated by production and terminal shut-ins that have stopped Nigeria from benefiting from what should have been a crude oil windfall.”

The report however noted that recent efforts at tax reforms, while commendable, have been largely fixated on raising the tax rate and introducing new taxes but however noted that emphasis should be more on increasing the tax bracket.

It stated: “The phased increase of the excise duty on tobacco and alcoholic beverages between 2018 and 2020 in addition to the 50 per cent increase in Value Added Tax (VAT), from 5 per cent to 7.5 per cent in 2020, failed to yield a significant impact as the average Nigerian consumer continues to grapple with falling purchasing power and stagnating incomes.

“We believe that the revenue problem would be addressed more effectively if fiscal reforms were directed at broadening the tax base and capturing the informal economy (estimated to be around 65 per cent of GDP by the International Monetary Fund (IMF), as opposed to intensifying efforts to impose additional taxes on those already subject to taxation. The reality is that many informal businesses are compelled to pay levies, albeit informally and frequently to agents, commissioned by governments at the sub-national level, who remit agreed-upon sums to the authorities.”

“In many instances, these levies are collected regardless of whether or not the informal business earns revenue; they are compelled to comply by the prospect of force or loss and typically receive little benefit from these non-state collectors. These informal levies have also been observed to constitute a larger proportion of their incomes as they contend with multiple levies from all tiers of government. The International Center for Investigative Reporting (ICIR) estimates that Lagos State National Union of Road Transport Workers (NURTW) rakes in over N123 billion annually.

“Significantly increased domestic revenue mobilisation is essential for decreasing budgetary risks and creating policy space. Key near-term actions would include the permanent withdrawal of fuel subsidies in accordance with the Petroleum Industry Act (PIA), together with compensation measures for the poor and the efficient and transparent use of the saved resources, ”the report stated.