Nigeria Spends 98% of Total Income to Service Debt
Nigeria government spent 98% of total revenue generated between January and May 2021 to service the nation’s debt amidst the threat of fiscal slippage on the nation’s budget performance.
According to a document from Budget Office, Nigeria generated N1.84 trillion as revenue in the first five months but N1.80 trillion, representing 97.8%, was used to service the nation’s debt amidst persistent fiscal slippage.
Nigeria’s budget record shows earnings slippage from key sources including oil and gas, customs on a prorated basis from the month of January to May.
In its review of the budget implementation report, Cordros Capital said the actual revenue and expenditure performance led to a fiscal deficit of N3.01 trillion, translating to a 29.1% above the prorated budgeted deficit of N2.33 trillion in the period.
However, the report indicates that the deficit already booked represents an increase of 19.9% year on year when compared with the same period of last year.
Analysts believed that total debt service surged above the projected amount due to increased obligation and heightened debt costs as the borrowing rate jumped in the period.
However, analysts the amount generated grossly underperformed the prorated budgeted revenue of N3.33 trillion by 44.6%. This was attributed to a 49.5% decline in oil revenue.
In the period, revenue from oil printed at N423.00 billion against a prorated budget of N837.92 billion attributed to lower oil production volume.
In the budget 2021, FG projected gross oil and gas revenue of N5.19 trillion. However, Budget Office said in a report that as of May 2021, N1.49 trillion was realized out of the prorated sum of N2.16 trillion.
Oil and gas deductions were N189.93 billion (or 44.8%) more than the budget. This is mainly attributable to petroleum subsidy costs which were not provided for in the 2021 Budget.
“After netting out deductions including 13% derivation, net oil and gas revenue inflows to the Federation Account amounted to N876.54 billion. This is N859.82 billion or 49.5% less than the projection as of May”
Non-oil revenue which printed at N618.76 billion against a prorated budget of N620.39 billion was lower on account of an 11.1% underperformance in customs revenue.
Cordros stated that this happened despite the over-performance of revenue from company income tax, up 2.4% to N290.90 billion, supported by a 24.7% increase in Value Added Tax revenue to N123.85 billion compared to their respective prorated budget amount.
On a year-on-year basis, total revenue increased by 29.3% to N1.84 trillion in 5 months when compared with the equivalent period last year when FG receipt was N1.43 trillion. This, according to Cordros reflects improved economic activities following the reopening of the economy.
Also, the total expenditure which was printed at N4.86 trillion during the review period was 14.2% below the prorated budgeted expenditure of N5.66 trillion. However, FG total expenditure increased by 23.3% year on year above N3.94 trillion expended in the first five months in 2020.
Analysing the breakdown, recurrent non-debt expenditure which came at N1.87 trillion in the period against a prorated budget of N2.35 trillion constituted 38.5% of the total expenditure.
Meanwhile, debt service amounted to N1.80 trillion compare to a prorated budget of N1.39 trillion was 37.1% of total expenditure during the review period.
Codros said the increase in the debt service was due to the interest on ways and means or CBN overdraft Ways and Means worth N480.52 billion paid during the period, which was not provided for in 2021.
Accordingly, the debt service to revenue ratio during the review period was 97.8%, the same as in 2020. The total actual recurrent expenditure deviated from the prorated budget of N3.74 trillion marginally by -1.7%, driven mainly by the 20.5% underperformance of the recurrent non-debt expenditure.
Capital expenditure printed at N978.13 billion, came 43.1% below the prorated budget amount of N1.72 trillion, though it contributed 20.1% of the total expenditure during the review period.
Low capital expenditure implied that public spending remains skewed towards recurrent expenditure, which has a low multiplier effect on long-term growth outcomes, analysts said.
The revenue and expenditure performance led to a fiscal deficit of N3.01 trillion, a 29.1% above the prorated budgeted deficit of N2.33 trillion and an increase of 19.9% year on year compared with the same period of last year.
In financing the deficit, analysts said they estimate the government net issued of N1.23 trillion in bonds and treasury bills in the same period.
As of Q1, Cordros Capital said the additional borrowings on the W&M balance to the FGN was N1.47 trillion, 79.9% of the total revenue generated in 5 months of 2021, giving a total of N2.70 trillion used to finance the N3.01 trillion.
“We imagine that the balance of N310.00 billion constitutes grants, recoveries and fines collected during the period which was not booked in the fiscal accounts”, the firm said.
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Nigeria Spends 98% of Total Income to Service Debt
