Finance: Nigeria in the Throes of Fiscal Crisis

The decision of the federal government to embrace borrowing to pay the salaries of its public servants suggests an intractable fiscal crisis that can plunge the federation into the abyss of bankruptcy if not efficiently managed with its prevailing socio-economic realities, Gboyega Akinsanmi writes

As diverse indicators that measure governance and economic performance recently revealed, Nigeria is truly in the eye of the storm. First, its unity is loosely hung in the balance, which according to the International Crisis Group (ICG) and Strategic Studies Institute (SSI), is due to the increasing activities of divisive forces nationwide. Its effects,  as shown in their reports, have put the polity in bad shape.  

But Nigeria’s problems appear more complex than most analysts think they are. The Acting Accountant-General of the Federation (AGF), Mr Anamekwe Nwabuoku beamed light into the depth of the country’s gnawing multifarious crises at a retreat of public finance experts he addressed in Abuja a fortnight ago. 

At the retreat specifically convened to consider a policy alternative to borrowing, the AGF acknowledged Nigeria’s inability to pay salaries, which according to him, is absurd. He identified dwindling revenues as a dominant factor that compelled the federal government “to resort to other sources to augment for the payment of federal public servants.” 

 Ordinarily, as the AGF revealed, the federal government should not embrace borrowing to meet its recurrent obligations at a time of the historic rise in crude oil prices worldwide. But this has been the grim reality of Nigeria’s fiscal environment under President Muhummadu Buhari, about two decades after former President Olusegun Obasanjo negotiated debt relief for Nigeria.

As revealed in the debt records obtained from the Debt Management (DMO), this crisis did not start under Buhari’s administration. In 2007, for instance, the relief crashed external debt to $3.65 billion, apparently from $31 billion it owed Paris Club and $5 billion it owed London Club. But its domestic debt then stood at about $18.57 billion for the entire federation. 

But the debt trajectories portrayed Nigeria’s relapse to borrowing just after the end of Obasanjo’s administration. Under the administration of President Umaru Yar’Adua, for instance, Nigeria’s total public debt rose from $22.23 billion in 2007 to $35.09 billion in 2010, indicating an increase of 57.84 per cent.  

This trend continued into the era of President Goodluck Jonathan. From $35.09 billion in 2010, the country’s debt escalated to $65.43 billion in 2015. This represents an increase of 86.46 per cent. Under Buhari’s administration, according to the debt records, public debt steadily increased by 52.97 per cent to $100.09 billion in March 2022.  

When the AGF recently said this at the Abuja retreat, the trend again elicited protracted debate among analysts nationwide. Some argued that the rising debt profile had put Nigeria in an extremely weak fiscal position. The ugly trend, as others believed, could push the federation into the abyss of bankruptcy if not well managed. 

But the DMO shared an entirely different view for two reasons. First, the debt stock only represents 23.27 per cent of the GDP, which the debt office said, is still below a 40 per cent national threshold. Second, diverse policy initiatives aimed at growing and diversifying revenues are yielding results. By implication, according to the debt office, the debt stock is not beyond what Nigeria can sustain.

 Despite this defence, this keeps generating public concerns about the future of Nigeria. What then could have jolted the federal government into the dark realm of indebtedness after Obasanjo secured $20 billion debt relief for Nigeria from Paris? What again brought Nigeria into the debt trap amid highly-priced assets, which according to the Chief Executive, Economic Associates, Dr Ayo Teriba, could be harnessed to meet the country’s capital and recurrent needs. 

On different fronts, fiscal experts have explained reasons that justify the resolve of the federal government to borrow to offset wage bills, even when it violated section 41 of the Fiscal Responsibility Act, 2007. The AGF, for instance, attributed it to two major triggers. He, first, ascribed it to rising insecurity, which analysts agreed, had been at the core of Nigeria’s heinous socio-economic challenges.  

Also, the AGF explained it in the burning social needs of the people, who were either casualties of armed violence in the north or victims of economic distress in the major cities. The latter became compounded after the economy slid into recession first in 2016 and also in 2020. With humanitarian crises,  poverty indices and unemployment rates escalating by the day, analysts argued, the federal government embraced the option of investing more in social support programmes to prevent outright descent into criminality.

 Apparently, for others, rising insecurity and social needs are insufficient to justify Nigeria’s resort to borrowing to pay salaries. In the last seven years, according to Teriba, far-reaching reasons accounted for the failure of the federal government to fulfil its basic recurrent obligations. In 2016 when the economy slumped into distress, specifically, Buhari himself blamed it on an extremely low crude oil price, which then dropped to about $29 per barrel. 

In 2020, the outbreak of COVID-19 triggered another economic downturn, which Chief Executive, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf claimed, was the fallout of the country’s previous fiscal indiscipline and the failure to create an enabling regulatory environment that could attract massive investments and spurred economic activities nationwide. 

 But the problem is not as simple as how some analysts put it, especially with the historic rise in the crude oil prices. From $29 in 2016, bonny light is currently about $123 per barrel. Ordinarily, this should be an advantage for the federation. But the increase has not translated to fortune due to what Teriba ascribed to unprecedented cases of oil theft that affected oil production and the vicious regime of fuel subsidy that escalated the cost of under-recovery. 

 In particular, the incidence of oil theft has sparked national outrage among key actors in the petroleum industry. This concern arose from the volume of crude oil being lost to oil thieves daily. The Chairman of Heirs Oil and Gas, Mr Tony Elumelu put it at about 95 per cent of the country’s production capacity. For Chief Executive Officer, Seplat Energy Plc, Mr Austin Avuru, it is as high as 80 per cent. 

 Also, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) admitted the gnawing trend of oil theft. But its Chief Executive, Mr Gbenga Komolafe, conservatively put the loss at 7.6 per cent. Even though the exact volume of stolen oil cannot be ascertained, the trend has been grave for governments at all levels. The gravity of its consequences is evident in the failure of the Nigerian National Petroleum Corporation (NNPC) to remit its projected revenue into the Federation Accounts.  

In 2021, for instance, the corporation was projected to remit N2.5 trillion into the Federation Accounts. But at the end of the fiscal year, the corporation could only remit N542 billion, accounting for about 21.58 per cent of its projected revenue. 

By 2022, the shortfall grew worse than it was in the previous fiscal year. Of its N1.47 trillion projected as remittance, the corporation has not been able to remit a dime due to what its Group Managing Director, Mallam Abba Kyari attributed to the increasing cost of under-recovery, which weakened the capacity of the federal government to pay wage bills without borrowing. 

With these grim fiscal realities, economists observed, Nigeria can slide into insolvency amid rising public debt stock and dwindling revenues. But most of them are divergent on how this challenge can be handled in the interest of the citizenry. As the AGF put it, the federal government has already embraced the options of institutionalising fiscal discipline; blocking loopholes in the public finance system, expanding the country’s tax coverage or possibly increasing the tax burden in some cases. 

 To some degree, Yusuf, former Director-General of Lagos Chambers of Commerce and Industry, subscribed to the options before the federal government. In specific terms, however, Yusuf canvassed a radically restructured economy, which could enable the real sectors; catalyse massive investment inflow; cut the cost of governance significantly and boost fiscal accountability. 

 Unlike most analysts, Teriba proposed a more pragmatic option that could ease the country’s burden of public debt. He believes more in securitising the country’s idle assets than the increasing tax burden on corporate citizens and individuals. Securitisation of idle assets, he argued, provides access to much-needed liquidity and relieves the federal government of the burden of debt repayment and servicing. 

He further explained how Saudi Arabia embraced this option by selling about two per cent of its stakes in Aramco at over $29 billion. With what it realised from the sale of two per cent stakes in its oil conglomerate, he observed, the country was able to inject life into its crawling economy without the burden of debt repayment and servicing. With this approach, Nigeria can register all its idle assets; list them in the stock market to know their values and determine the percentage of its interests to be listed for investments.