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Wednesday, September 28, 2022

Analysts say ailing revenue, recurrent expenditure fueling debt service concerns

The recently released Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF and FSP) revealed that Nigeria’s debt stock rose by N2.1tn to N41.6tn (excluding the FGN’s Ways and Means outstanding, currently estimated at N20.0tn) in the Q1-2022, with c. 60 per cent emanating from domestic debt stock.

The report also revealed Debt servicing amounted to N1.9 trillion, exceeding the budget by 47 per cent between January and April. In the same period, Federal Government revenues amounted to 1.6 trillion, underperforming against the budget by 50.9 per cent in Q1-2022.

The nation’s already fragile debt profile has been continually threatened by ailing Oil Revenue, which has been dragged by the high importation costs of PMS and Oil production shortfalls resulting from reduced production, theft, and vandalism. As a result, Oil Revenue declined and stood at N1.2 trillion against a projected N3.1 trillion in Q1-2022.

This was despite prices exceeding the benchmark of $70 (Brent crude averaged $104.5 in 2022). The underperformance is mainly due to weaker than projected oil production, with crude oil production averaging 1.32mbpd as of Apr-2022 (compared to the budget benchmark of 1.60mbpd).

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On the other hand, Non-Oil revenue performance stood at 84 per cent, driven by the strong performance in the collection of a Company Income Tax (CIT) (99 per cent of its target) and Value Added Tax (VAT) (98 per cent of its target).

Ailing revenue and incessant spending on recurrent expenditure have (grown 152.8 per cent from N3.6 trillion to N9.1 trillion in the last five (5) years) increasingly leading the FGN to seek debt financing. Subsequently, Debt servicing to revenues stood at 88.1 per cent in 2021, increasing from 84 per cent in 2020.

In conclusion, overall economic performance has averagely returned N4.3 trillion achieving 70 per cent of the budget in the past five (5) years, and the Oil revenue achieved 68 per cent of the target averaging N2.0 trillion in the same period.

The FGN efforts to grow its Non-Oil revenue have been amicable, with Non-Oil revenue performance returning 1.9 trillion on averagely in the same period and achieving 94 per cent of the budget.

Despite the nation’s 22.3 per cent debt to GDP ratio (still below the fixed ceiling of 40 per cent), the debt servicing to capital expenditure has risen significantly to 250 per cent as of Q1-2022, against 140 per cent for FY-2021 Indicating despite rising debt stock the nation’s investment in CAPEX has reduced relatively over time further reducing the nation’s ability debt sustainability.

~United Capital 

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