Economic analysts have some of the steps the Nigerian government needs to take to prevent a major economic crisis in the country.
The economy is faced with many headwinds such as high inflation, exacerbated by the Russia-Ukraine war, forcing the Central Bank of Nigeria to raise its key interest rate by 400 basis points this year in a bid to curb price pressures.
According to the United States Agency for International Development, Nigeria’s economic potential is constrained by many structural issues, including inadequate infrastructure, tariff and non-tariff barriers to trade, obstacles to investment, lack of confidence in currency valuation, and limited foreign exchange capacity.
Some analysts have expressed fears that the country may face a fiscal crisis and debt default.
According to Tajudeen Ibrahim, director of research and strategy at ChapelHill Denham, one fundamental thing that Nigeria should do is to address the enormous problems in the oil and gas sector.
“I called them enormous problems because they have somewhat almost wrecked the country in terms of revenue generation, and the problems around crude oil theft and pipeline vandalism. So if we are able to address those two, we will see our total revenue rise, because production and also sales will rise,” he said.
Nigeria’s federal government could see its revenue shortfall hit the highest level in 12 years in 2022, according to available official data collated by BusinessDay.
The government missed its revenue target by 36 percent in eight months (January-August) but still achieved 83 percent of its spending plan, the latest data from the 2022 budget implementation showed.
Ibrahim said another fundamental issue Nigeria needs to address to avert the looming crisis is the issue of petrol subsidy.
“The subsidy is robbing us of government revenue and if it is removed, the government will also be in a stronger position in terms of revenue generation. So those two are fundamental to ensuring that we do not default on any of our debt. We’re able to service our debt as and when due and also we will be able to avoid recession,” he said.
He stressed the need to accelerate tax collection, saying that about 20 million Nigerians out of 69 million people in the Nigerian workforce are taxpayers, based on the latest data, who can add to the revenue generation of the government.
Olaolu Boboye, a senior analyst with CardinalStone Partners Limited, said Nigeria is likely to experience debt default next year or anytime soon. “Despite the stressed fiscal position of the government, it is possible that the government still has enough fiscal buffers to cater for its fiscal needs.”
“To put this in context, there is the likelihood that subsidy might be removed from next year, especially when the Dangote Refinery comes on board; it might be selling at a market reflective price, which means that money spent by the government on subsidies annually is off the hook, which is positive for the fiscal position of the government,” he added.
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The National Bureau of Statistics recently released the multidimensional poverty report, which showed that Nigeria has 133 million people facing multidimensional poverty, representing 63 percent of the nation’s total population of 211 million individuals.
To stop more people from slipping into poverty, Ibrahim said Nigeria should solve the infrastructure problems such as poor electricity in the country.
“For instance investments in the power sector are key to ensure that micro, small and medium businesses are able to do their businesses as they require a power supply that is not too expensive and that is available and sustainable,” he said. “Small businesses die naturally because they don’t have a sustainable cheap source of power.”
In order to prevent more people from falling into poverty, Boboye said Nigeria needs inclusive growth strategies in the policies that will affect the formal sector, which is measured by the GDP and the informal sector.
He also calls for economic reforms that will promote economic development.
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