The government likely borrowed N3.09 trillion in four months to finance its budget deficit.
The Nigerian government deficit spending shot up to N3.09 trillion in the first quarter of 2022, an analysis of Nigeria’s 2022 fiscal performance report for the first quarter of the year has shown.
The government on Thursday released the performance report which showed that the pro rata spending target for the first quarter of the year was N5.77 trillion, while the actual spending as of April 31 was N4.72 trillion.
On the other hand, as of April 2022, FGN’s retained revenue was only N1.63 trillion, 49% of the pro rata target of N3.32 trillion, putting the deficit between actual spending and revenues at N3.09 trillion. It means the government likely borrowed to cover the deficit.
A breakdown of the actual spending showed that N1.94 trillion was for debt service, N1.26 trillion for personnel costs, including pensions, and as at April, N773.63 billion had been spent on capital expenditure.
The government’s 2022 budget was projected to be N17.32 trillion, 18 per cent higher than the 2021 budget. Recurrent (non-debt) spending is estimated to amount to N6.91 trillion, which is 40 percent of total expenditure, and 20 percent higher than the 2021 Budget.
Aggregate capital expenditure of N5.96 trillion is 35 per cent of total expenditure, inclusive of the capital component of Statutory Transfers, GOEs (Government-Owned Enterprises capital), and project-tied loans expenditures. At N3.61trillion, debt service is 21 per cent of total expenditure, and 34 percent of total revenues.
Borrowing Spree
In the new performance report released Thursday, the government did not indicate how the N3.06 deficit was financed within the quarter. However, PREMIUM TIMES’ analysis of the government’s revenue and expenditure performance showed that it must have been financed through borrowing, including CBN’s Ways and Means facility.
In the last few years, the nation has relied heavily on the CBN’s deficit financing, with the amount peaking at N19 trillion as of June 2022.
Earlier in the year, Nigeria’s Minister of Finance, Budget, and National Planning, Zainab Ahmed, explained that Nigeria’s overall deficit of N6.39 trillion appropriated in the 2022 budget would be financed mainly by borrowings due to paucity of funds.
The minister said that borrowing the amount, which represents 3.46 percent of the Gross Domestic Product (GDP), became necessary due to the nation’s lean revenue profile and the need to up infrastructural development in the country.
Details of the budget showed that the sum of N2.57 trillion would be borrowed from domestic sources and another N2.57 trillion from foreign sources, while the government hopes to draw down N1.16 trillion from multilateral/bi-lateral loans and harvest N90.7 billion from privatisation proceeds.
In the first quarter of 2022, Nigeria’s public debt rose to N41.6 trillion from N39.56 trillion recorded at the end of December 2021, putting enormous pressure on debt servicing.
Weak Fiscal Safeguards
The new performance report said that gross oil and gas federation revenue for full year 2022 was projected at N9.37 trillion but as at April 30, 2022, only N1.23 trillion was realized out of the prorata projection of N3.12 trillion, 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%.
The Nigerian economy sustained its recovery from recession for the fifth consecutive quarter, growing by 3.11% in real terms in Q1 2022 as most sectors recorded positive growth. The report said that the broad-based growth reflects the effective implementation of Nigeria’s economic sustainability measures.
However, like many other economies, the Nigerian economy faces lingering Covid-19 pandemic effects, as well as higher global food and fuel prices due to the Russia-Ukraine war, the report noted.
The International Monetary Fund (IMF) projects global growth to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023.
The report noted that Nigeria continues to be exposed to risk aversion in the global capital markets, which will put further pressure on the foreign exchange market as foreign portfolio investors are yet to return to the Nigerian Market. “The CBN expects the renewed pressure in the foreign exchange market and the accompanied naira depreciation to subside from the third quarter of 2023,” it said.
PREMIUM TIMES’ reported Thursday that Nigeria’s fiscal position worsened as the cost of debt servicing surpassed the Nigerian government’s revenue in the first quarter of 2022. Details of the nation’s fiscal performance in Q1 2022 showed that Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.
Mrs Usman on Thursday warned that urgent action is needed to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.