- Government allocated most of its income to service debt
- January to November expenditure was double Nigeria’s income
According to Bloomberg article published on January 5, 2023, Nigeria spent 80% of its revenue to pay debt in the first 11 months of last year, showcasing the challenge for the government that’s pledged to improve its finances in 2023.
The outgoing administration of President Muhammadu Buhari allocated 5.2 trillion naira ($11.3 billion) to servicing debt between January and November, while generating income of 6.5 trillion naira, Finance Minister Zainab Ahmed said in a presentation on Wednesday. The government in its 2023 budget has pledged to boost collection and bring down debt payments to 60% of revenue.
Multi-decade low oil output and costly gasoline subsidies stymied government revenue in Africa’s largest crude producer last year. Nigeria’s expenditure in the 11 months to November — at 12.9 trillion naira — was almost double its revenue, with more than 90% of the deficit financed by local borrowing, according to the presentation.
“Fiscal risks are somewhat elevated, following weaker than expected domestic economic performance and structural issues adversely impacting the domestic economy,” Ahmed said. “We will intensify our revenue mobilization efforts and intensify current efforts toward the realization of our crude oil production and export targets.”
Total spending over the year may fall short of the 18.1 trillion naira targeted in the amended 2022 budget and this would largely be due to a reduction in money for capital projects.
Debt Obligations
Servicing debt cost the government more than estimated in the 2022 budget. That’s because of the interest it set aside for advances from the nation’s central bank. Buhari is seeking lawmakers’ approval to convert short-term borrowing into bonds that will be repaid over decades.
While Nigeria is not planning on restructuring its debt, it “will however continue to utilize appropriate debt management tools to streamline the cost and risk profile in the debt portfolio,” the minister said. “Including through concessional loans, spreading out of debt maturities to avoid bunching, and re-profiling of the debt maturities by refinancing short-term debt.”
The government will mobilize more revenue this year in part by increasing oil production, which has begun to recover in recent months from a multi-decade low, and end expensive gasoline subsidies at the end of June, she said.
Buhari, who will leave office in May, signed Nigeria’s 2023 budget on Jan. 3. The finances are built on the assumption of another large deficit at 11.3 trillion naira. The plan estimates record expenditure of 21.8 trillion naira against revenue of 10.5 trillion naira and debt service of 6.3 trillion naira, which would be 29% of total expenditure.
“It should also be noted that government revenue projections are often overoptimistic and out-turns usually fall below target” resulting in higher than budgeted fiscal deficits, the World Bank said in a report last month.
