Nigeria is experiencing a relentless increase in debt which exposes its weakness in revenue generation.
The current administration allocated 80 percent (5.2 trillion naira) of its revenue to debt service between January and November 2022, while the revenue generated amounted to 6.5 trillion naira, according to Zainab Ahmed. , Minister of Finance, Budget and National Planning.
Muda Yusuf, executive director of the Center for the Promotion of Private Enterprise (CPPE), said Nigeria’s debt is currently unsustainable because 80 percent of revenue to service debt indicates the country is likely to continue in the cycle Highly indebted because the government needs to borrow more to run things.
“This is a reflection of the unsustainable debt situation and will require tax improvement and key reforms in the foreign exchange market to bring in more revenue and more investment. Subsidies and all leaks in the oil sector must be stopped to increase revenue,” Yusuf said.
The Debt Management Office (DMO) expects Nigeria’s debt to reach 77 trillion naira after the securitization of loans from the Central Bank of Nigeria and new loans this year. Patience Oniha, CEO of DMO, had this to say at the public launch and breakdown of the highlights of the Appropriation Act 2023 in Abuja on Wednesday.
“There are many discussions about ways and means. In addition to the significant cost savings in loan servicing that we would get by securitizing it, there is an element of transparency in the sense that it is now reflected in the stock of public debt,” he said.
The increase in the stock of public debt continues to raise concerns about the sustainability of the nation’s debt, particularly in light of the low revenue performance.
Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said the development raises concerns and is largely because Nigeria has very low net income after the removal of the petrol subsidy.
“The way forward is to consider removing the subsidies this year, which will free up a sizeable chunk of revenue to use for other purposes. If we remove the gasoline subsidy this year, for example, we will have a much higher revenue base that will drive debt-to-revenue service down to a much lower level,” Ibrahim said.
He added that Nigerians are already buying unsubsidized gasoline in some parts of the country and few service stations sell at subsidized prices. “The subsidy is taking a substantial part of the revenue.”
The Finance Minister reiterated last week the Federal Government’s plan to eliminate fuel subsidies, which is in line with the 18-month extension announced at the beginning of 2022.
According to her, in the fiscal period of 2023, the government has made provisions of N3.36 trillion for fuel subsidy payments to cover the first six months of the year.
In April 2022, the National Assembly approved N4 trillion for the gasoline subsidy for that year, following two separate requests from the president. The government had shelved a planned move to suspend payment of the subsidy a few weeks earlier.
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The International Monetary Fund (IMF) has warned that the Nigerian government can spend almost 100 percent of its revenues on debt service by 2026. It expressed concern over Nigeria’s fiscal conditions, adding that the nation spends 89 percent percent of their income in debt.
Olaolu Boboye, Senior Analyst at CardinalStone Partners, said: “We need to address revenue challenges by adopting revenue-raising tax reforms around improving the efficiency of state-owned companies where it could generate revenue like the private sector, which will lead to massive support.
“Tax reforms could be a way to boost non-oil revenues beyond taxes, such as untapped natural resources, where if harnessed and exported, revenues can improve. Promotion of industrialization in the company and reform to improve taxation by taxing natural persons who do not pay taxes.”
He said removing the subsidies will free up money for special spending and spending can be concentrated on capital spending, which will have a long-term impact on increasing revenue and then reducing the level of debt.
The World Bank and IMF have continued to urge the Nigerian government to implement much-needed fiscal reforms, such as removing subsidies and broadening the tax base to reduce the fiscal deficit.