By John Ikani
Hard times are already here for the Federal Government of Nigeria, hard, as its debt servicing exceeded retained revenue by as much as N310 billion in the first four months of 2022.
This is the first time the country’s debt service to revenue ratio would hit or exceed 100 per cent.
Nigeria’s Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed sounded the alarm bells on Thursday as she revealed that the country’s debt service cost in the first quarter (Q1) 2022 was N1.94 trillion, N310 billion higher than the actual revenue received during the period.
According to details of the 2022 fiscal performance report for January through April presented by the minister, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.
The report showed that gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39% performance.
Despite higher oil prices, the report showed that oil revenue underperformed due to significant oil production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost due to higher landing costs of imported products.
However, non-oil taxes trailed targets marginally, with average performance of 92.6%.
“Revenue performance is expected to improve in the second half of 2022 as a result of concerted efforts to address the oil theft and pipeline vandalism, the report said. It added that there is also seasonality to some of the non-oil taxes, which means that the nation expects to collect significantly more in the second half of the year.
“The improved revenue collection should also moderate the Debt Service to Revenue ratio, which is currently above our target level,” the report said.
The expectation of improved revenue collection should also moderate the debt service to revenue ratio, which is currently above the nation’s target level.
The report noted that for Nigeria, “fiscal risks are somewhat elevated”, following weaker-than-expected domestic economic performance and structural issues in the domestic economy. It warned that revenue generation remains the major fiscal constraint of the nation and the systemic resource mobilization problem has been compounded by recent economic recessions.
The underlying factors also include the Russia and Ukraine war, which the report said has assumed a new and worrisome dimension with severe implications on food and energy prices. It listed the resurgence of COVID -19 in some major economies, which has led to slowdown in economic activities in those countries; as well as renewed elevated inflation in most economies, prompting monetary tightening in these economies with the inherent negative impact on capital inflow to emerging markets economies.
Also identified as a contributing factor is the challenging domestic macroeconomic and business environment and the negative impact of insecurity on the domestic economy.
“Efforts will however focus on improving tax administration and collection efficiency,” the report said.
“Crude oil production challenges and PMS subsidy deductions by NNPC constitute significant threat to the achievement of our revenue growth targets, as seen in the 2022 Performance up to April.
“Bold, decisive and urgent action is urgently required to address revenue underperformance and expenditure efficiency at national & sub-national levels,” it warned.