The International Monetary Fund (IMF) has again raised the red flag on Nigeria’s worsening revenue generation disaster. IMF warned three weeks ago that Nigeria might spend 97 per cent of its meager revenue on debt service in its 2023 budget.
That is a financial calamity waiting to happen. The meaning of the warning from the IMF is that Nigeria at the current rate of revenue generation and loans procurement would in 2023 have just three per cent of its revenue left for its humongous cost of governance and practically nothing for capital budgets.
Everything suggests that the IMF projection is right on target. Nigeria is deep in forex crisis. The turmoil in the forex market has sent the naira plummeting to a record low of N580 to the dollar.
No one in the federal government is worried about Nigeria’s deteriorating debt crisis. Government believes that Nigeria’s debt is still sustainable and that Africa’s largest economy remains credit worthy even as its revenue plummets precipitously.
Despite repeated warnings from the IMF that Nigeria’s debt was no longer sustainable, the body language of the international lender itself suggests that Nigeria is still credit worthy.
There were strong indications last week that IMF might extend even more credit lines to Nigeria despite the warning that the country would have just three per cent of its revenue left for its services in 2023 after servicing its massive debts.
IMF has not discarded its hypocritical policy of bailing out heavily indebted countries with more debts. In the 1980s when Brazil’s economy was tottering on the brink with an international debt of $110 billion, IMF rushed to the embattled Latin American economic giant with more loans.
The loans were designed to fend off the looming collapse of weak banks in the United States of America that Brazil was heavily indebted to. It was not exactly meant to bail out Brazil’s tottering economy as it was to be used to service Brazil’s massive debts to keep its creditors afloat.
That may be the logic behind the planned new IMF credit lines to Nigeria. Nigeria’s debt to the IMF is minimal by international standard. The federal government obtained a jumbo loan of $3.4 billion from the IMF to balance its budget during the COVID-19 economic turbulence of 2020. Nigeria’s debt to the IMF may not be more than $5 billion.
That amounts to pittance when compared to Argentina’s debt of $45 billion to IMF. Argentina is highly industrialized, yet its economy groans under heavy debt burden. Argentina’s economy has collapsed twice in the last 40 years due to massive debts emanating from heavy spending on social security.
Nigeria’s total debt of $89 billion is less than 40 per cent of its GDP, while Argentina groans under a crushing debt burden of well over 100 per cent of GDP. Nigeria’s economy has never collapsed despite the crushing debt burden. Unlike Argentina, Nigeria pays lip service to social security. That makes it the world headquarters of poverty.
IMF has warned that Nigeria’s problem borders on its low revenue generation capabilities. The problem goes beyond the IMF diagnosis. It is an odd combination of low revenue generation and massive leakages fueled by unprecedented level of corruption.
The situation is even worsened by the stupendous opulent lifestyle of government officials. The federal government lacks the will power to curtail the spending pattern of its officials despite its deteriorating revenue.
The IMF complaint about low revenue generation capabilities is well known to the world. Nigeria has one of the world’s lowest tax-to-GDP ratios. Nigeria’s tax revenue is a scant six per cent of its GDP.
Tax-to-GDP ratio in the Economic Community of West African States (ECOWAS), stands at an enviable average of 15 per cent. In fact Nigeria would need 20 years to meet the 20 per cent tax-to-GDP ratio target set by ECOWAS for countries wishing to join the Eco monetary union, the common currency proposed by the community.
Nigeria is not just a bad tax collector, it is equally a reckless spender. The lean revenue from crude oil sales, tax and import duties is squandered on the flamboyant life style of government officials. Government has not considered the crippling financial asphyxiation critical enough to warrant the imposition of austerity measures on its officials. They still intimidate the populace with their posh sport utility vehicles in convoys stretching several poles on the roads.
Nigerian National Petroleum Corporation (NNPC) takes a pound of flesh from the lean proceeds from crude oil exports by exaggerating Nigeria’s petrol consumption figures and deducting an amount that is twice the subsidy for daily petrol consumption.
Nigeria’s most deadly enemies are crude oil thieves. Last week the Central Bank of Nigeria (CBN) warned that crude oil thieves were taking Nigeria down the financial precipice.
Crude oil worth $3.27 billion was stolen in the last 14 months. The quantity of crude oil stolen daily is so overwhelming that the theft cannot be traced to the operators of hundreds of primitive evaporation-and-condensation refineries in the creeks of Niger Delta.
The bulk of the theft is by well wired politicians and retired generals who are inauspiciously allocated sizable consignment of crude oil for sale at a discount in the international waters. The illegal refineries in the creeks of Niger Delta account for less than three per cent of the oil stolen daily in Nigeria. Those who get the crude through clandestine allocation are Nigeria’s greatest financial enemies.
The federal government appears to be chasing shadows when it comes to the fight against low revenue generation. The increase in value added tax (VAT) has merely impoverished millions, fueled inflation and yielded minimal returns in terms of revenue generation.
Government can confront oil theft by halting the clandestine allocations to its high net worth cronies.
It can raise more money from import duties by setting a target of N7 trillion for Nigeria Customs Service (NCS) and predicating the comptroller-general’s job security on attainment of the target.
For the Federal Inland Revenue Service (FIRS), government should start with 10 per cent of GDP as annual tax revenue target while the service should be given five years to hit the target of 15 per cent which is the average in ECOWAS.
Tax revenue in the range of 10 per cent of GDP would give Nigeria something close to $40 billion as yearly tax income. If the federal government cannot curb the flamboyant lifestyle of its officials, it should beef its tottering revenue to sustain it. Those who spend big must learn to earn big.