The recent announcement by the World Bank that Nigeria spent 96 per cent of its revenue on debt servicing in 2022, has continued to elicit reactions from several quarters with an expert saying they were least surprised.
In the Macro Poverty Outlook for Nigeria: April 2023 brief, the bank, in the report said: “The fiscal position deteriorated. In 2022, the cost of the petrol subsidy increased from 0.7 per cent to 2.3 per cent GDP. Low non-oil revenues and high-interest payments compounded fiscal pressures.
“The fiscal deficit was estimated at 5.0 per cent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 per cent. This has kept the public debt stock at over 38 per cent of GDP and pushed the debt service to revenue ratio from 83.2 per cent in 2021 to 96.3 per cent in 2022.”
The bank also said the cash scarcity created by the Central Bank of Nigeria (CBN)’s naira redesign policy, hampered the country’s economic growth and poverty reduction efforts, adding that about 13 million Nigerians would become poor between 2019 and 2025.
Nigeria in more fragile position
It further noted that “Nigeria is in a more fragile position than before the late 2021 global oil price boom. Growth and poverty reduction have further been affected by cash scarcity in the context of the Naira redesign. The economy is projected to grow by an average of 2.9 per cent per year between 2023 and 2025, only slightly above the population growth rate of 2.4 per cent. Growth will be driven by services, trade, and manufacturing. Oil production is projected to remain subdued in part because of inefficiencies and insecurity.
“With Nigeria’s population growth continuing to outpace poverty reduction and persistently high inflation, the number of Nigerians living below the national poverty line will rise by 13 million between 2019 and 2025 in the baseline projection.”
The World Bank also said the worsening economic environment in the country had pushed millions of Nigerians into poverty.
Oil price booms
The brief further reads: “Oil price booms have previously supported the Nigerian economy, but this has not been the case since 2021. Instead, macroeconomic stability has weakened amidst declining oil production, costly fuel subsidies, exchange rate distortions, and monetization of the fiscal deficit. The deteriorating economic environment is leaving millions of Nigerians in poverty. Risks are tilted to the downside given the lack of macro-fiscal reforms, the naira demonetization, and an uncertain external outlook.”
The Washington-based bank further noted that macroeconomic stability has weakened considerably due to multiple FX rates, high and increasing inflation, rising fiscal pressures, and declining forex reserves.
Deteriorating fiscal position
It noted that Nigeria’s fiscal position had deteriorated since 2015 due to declining oil revenues and rising expenditures, resulting in persistently high fiscal deficits.
The bank also said “Nigeria’s chronically high inflation has been on the rise since 2019, especially for food items, eroding the purchasing power of poor and vulnerable Nigerians and increasing poverty.”
The lending institution said that inflation reached an annual average of 18.8 per cent in 2022, a 21-year high, with food inflation in 2022 estimated to have pushed five million Nigerians into poverty.
Lack of political will
A political economist, Adefolarin Olamilekan, who spoke to Blueprint on the development, attributed the country’s huge debt-service obligation to lack of political will by Nigeria’s fiscal authorities’ to take painful but important decisions that would have long-term benefits for the country.
Olamilekan said spending virtually the country’s revenue to service debt was unsustainable and would lead to poor implementation of the 2023 budget.
He said the World Bank’s statement was stating the obvious considering that the country had been borrowing for unproductive projects.
The expert noted that the audacity to keep paying for over bloated subsidies on PMS contributed hugely to debt services cost.
He added that regrettably, the government had not considered alternative channels of improving revenue.
Implication on service delivery
“Sadly, the implications of this would be negatively felt in service delivery projects. And we should expect poor funding of the 2023 budget, chiefly the capital project components.
“With an over burden on the general health of the economy as well slow motion in government activities.
“As profitable as loans could be as economically leeway to transform micro and macroeconomic index positively, we have only succeeded in further deepening our debt services obligations,” the political economist said.
To address the situation, he said “the government must “rethink our loan activities as this will require the government obtaining loans for just productive and profitable enterprises.”
