Nigeria’s over dependence on oil revenue and Fiscal irresponsibility on the part of the government are the major reasons for the rising public debt, according to experts.
Nigeria has over the years depended heavily on oil revenue to run the economy resulting in the neglect of other sectors such as agriculture and manufacturing.
But with dwindling oil revenue occasioned by the fall of crude oil prices in the international market, Nigeria has struggled with budget deficits in the last eight years resulting in heavy borrowings which has now put the nation’s total public debt at N46.25 trillion as at December 31 2022.
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had while seeking approval from the National Assembly for a loan to finance a ₦4.97 trillion deficit in the 2020 budget acknowledged that Nigeria had a revenue problem.
The government has consistently maintained that Nigeria does not have a debt problem, noting that the debt-to- Gross Domestic Product (GDP) ratio of 23.20 percent as at December 31 2022 is still within the 40 per cent limit self-imposed by Nigeria and the 55 per cent limit recommended by the World Bank/International Monetary Fund (IMF) as well as the 70 per cent limit recommended by the Economic Community of West African States (ECOWAS).
Some argued that the minister’s statement was a denial of the huge debt problem the government is grappling with, and that it was only meant to play down the unhealthy loan habits and wasteful spending of the government. Yet, some believe the minister’s position that Nigeria’s dependence on declining oil revenue is the problem, not debts in itself.
While the government consistently speaks of reforms to halt the country’s over-dependence on oil revenue, the budgets show the government has its eyes fixated still on oil revenue for survival. The federal government indicated in its budgets from 2010 to 2014 that it expects over 60 per cent of the revenue that will fund its spending to come from oil sales. While it budgeted lower in 2015 and 2016, it has since resumed an increasing reliance on oil to fund its budgets, from 51 per cent in 2017 to 66 per cent in 2019.
Nigeria’s budget records over the years show that the federal government has been running all its budgets on deficits. However, in recent times, due to decreasing revenue from NNPC’s inefficient management of oil proceeds, and shortfalls from other non-oil revenue sources, the government has actually been experiencing a deficit more than they planned in the budget, and the government was borrowing much more than they planned.
Mr. Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers (PwC) says Nigeria’s rising debt is due to a number of factors including but not limited to low revenue generation. He said the critical issues regarding low revenue generation include fragmented tax administration with various agencies jostling for collection of various taxes and levies which is not only ineffective but also creates huge leakages for the government and excessive burden on the other hand for individuals and businesses. According to him, “Government needs to harmonise taxes and revenue agencies to address this problem while leveraging data for tax intelligence to widen the tax net.
“Another issue contributing to rising debt is the inefficiency of government spending and questionable priorities. Rather than prioritise basic infrastructure and human capital development, we often incur expenses on white elephant projects and even when the projects are desirable, the costs are often inflated and completion time unduly protracted leading to cost escalation and lower public value.”
He also noted that there are also issues with respect to debt optimisation especially regarding terms such as interest rates and tax breaks. “Ways & Means financing for instance attracts interest rate at the monetary policy rate amounting to almost N2 trillion in 2022 yet this amount was not declared as dividend back to the federal government by the CBN. The rising interest rate is further compounding the debt problem,” Oyedele said..
“The other major issue is poor assets and resource management especially crude oil theft, wasteful subsidy regime, and political interference in the management of key government business entities such as the NNPC which if well run could generate tens of billions of US dollars for the government across all levels.”
For Eze Onyekpere, Lead Director, Centre for Social Justice, the argument that Nigeria is not generating enough revenue is a compound expression.
He said that the issue is that there are so many revenue leakages, so much that should have come to the treasury for government to work with is not coming in.
According to him, “We are also not being imaginative and creative about enhancing domestic resource mobilisation as well as simply not putting on our thinking caps in terms of what we should borrow money for and what not to borrow money for.
“The law is clear that you only borrow for capital expenditure, but we are borrowing money for recurrent expenditure when we shouldn’t borrow.”
He said there are a lot of projects that the government should have brought in the private sector to do which it is insisting on doing like the railway, “even if government lays the tracks, government does not have to run the wagon, it is just like building a road and people buy buses.
“So by the time you take away the little that comes in and refuse to be creative, that is why the debt is rising. Again even the loans are not used to invest in what it was meant for. The logic is that you invest in infrastructure, education and health so that it will help you improve the ease of doing business, produce the human resources that can aid development, as you are doing these things your manufacturing sector will improve, your service sector will improve and your GDP will grow and you earn more money which will help you to repay the loans. But that is not happening because most of the projects they are doing with borrowed money is also over inflated.”
Prof. Oyebanji Oyelaran-Oyeyinka of the African Development Bank, said the excess crude account (ECA) which would have served as a reserve for lean periods has been depleted. He said the depletion of the ECA and refusal to replenish it even when oil prices exceeded the benchmark price is evidence of fiscal irresponsibility and mismanagement.
According to him, “It shows a poor understanding of the dynamics of fiscal governance and that is why our debt is rising.”
He noted that over the years Nigeria has been drawing from the ECA which is supposed to be a savings account for the government, without replenishing even when price rises above the predetermined level.
In his words, “ECA was a rainy day account to provide a cushion, soft landing and elbow room in lean periods from the savings of periods of boom in consideration of the boom burst cycle of oil prices.