With less than four months until the next general election, Nigeria’s next president is expected to inherit at least five daunting tasks if he must fix the country’s ailing economy.
Nigeria, Africa’s most populous nation, is gearing up for what is set to be a keenly contested presidential election next February, and some of its popular politicians are already flinging themselves into what could turn out to be a charged campaign season.
Whoever wins will take over a country that, despite having Africa’s largest economy, has barely grown in per capita terms over the past decade and has struggled to create anything like enough jobs for its people while severe debt servicing continues to consume virtually all government revenues.
Under President Muhammadu Buhari, the country has been wracked by violence and banditry across much of the North and the sabotage of oil assets in the South. Roads between large cities have been plagued by kidnapping gangs, and the mass abduction of schoolchildren, such as the Chibok girls, has become common.
But the situation could get much worse.
The future prospects for the next president are beginning to look ugly due to mounting debts, little or non-existing oil savings, soaring petrol subsidy bills and serial abuse of the Excess Crude Account (ECA).
Burden of rising way and means advances
Fresh criticism has trailed the decision of the federal government to convert at least N20 trillion ($45.4 billion) of loans taken from the central bank to 40-year bonds.
“With the N20 trillion to be offloaded at an unrealistic 9 percent coupon, Buhari government is setting a big trap for the next government,” said Oluseun Onigbinde, the co-founder and CEO of BudgIT, a Nigerian civic startup.
“We have mounting external/domestic debt service costs. Now, we are going to add CBN adventures to it, for a long time. We are toast. Everyone would bear their name in history,” he added.
Findings by BusinessDay showed that the proposed action of the government is in contravention of Section 38, sub-section 3(b) of the Central Bank of Nigeria (CBN) Act, 2007.
The Act states that “…no repayment shall take the form of a promissory note or other promises to pay at a future date or securitisation by way of issuance of treasury bills, bonds, certificates or other forms of security which are required to be underwritten by the bank.”
The Act also specified that monetary financing of fiscal deficits should not exceed 5 percent of the prior year’s revenue. Still, the federal government’s new borrowing from the CBN has repeatedly exceeded that limit.
Debt servicing
There is ample data showing that no government in the history of Nigeria has piled up debt like the current administration. Nigeria’s debt stock has tripled under the current administration to N42.84 trillion as at the second quarter of 2022.
With N42.84 trillion already accumulated in debt, Nigeria’s government insists debt is the only credible route to catalyse development as the government unveiled plans to borrow an additional N8.80 trillion to fund the 2023 budget.
It gets even worse.
Data from Nigeria’s Budget Office show that every year since 2015, the federal government has spent more money servicing debt than it has on badly needed infrastructure.
The trend of spending more on debt service than capital expenditure, which is set to stretch for the ninth straight year, according to the 2023 budget proposal, could see the government spend N6.31 trillion, 75 percent higher than the amount in the 2022 budget and 50 percent more than the actual amount spent in 2021.
The amount to be spent on debt service in 2023 translates to 65 percent of estimated revenues for the year (N9.73 trillion). That’s a better outlook than that of the International Monetary Fund, which forecast Nigeria’s debt service cost to equal 100 percent of revenues next year.
Petrol subsidy – Eating the future
Another major challenge that Nigeria’s next president will face is the decision of a cash-strapped federal government to spend N6 trillion on petrol subsidies next year.
Buhari, who came to power claiming there was nothing like subsidy, has presided over the biggest jump in the nation’s subsidy expenditure.
The 2022 NESG Macroeconomic Outlook report by the Nigerian Economic Summit Group showed Buhari’s payment for petrol subsidy grew from N307 billion in 2015 to N1.77 trillion in 2021. This represented a 477 percent increase within seven years.
Experts say the President has done nothing to arrest the collapse of Nigeria’s fiscal buffers on account of the relentless surge in subsidy expenditure, and now he is bidding time, hoping to pass on the burden to his successor.
Read also: Nigeria’s sleazy petrol subsidy awaits new president
‘Crude-for-cash’ deal
Despite declining oil production, the Nigerian National Petroleum Company Limited (NNPC) has entered into ‘cash for crude’ deals worth about $5.6 billion with some of its business partners.
For instance, the Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC, has a capital commitment contract of $1.04 trillion (N432 billion) with Eagle Export Financing Limited for the forward sale agreement for the delivery of crude oil.
“Under the contract, Eagle Export Funding Limited will make an upfront payment to NPDC for crude in a Forward Sale Agreement. The payment received is required to be settled with the delivery of crude oil volumes,” NNPC’s records showed.
Analysts say the NNPC could be on the hook for penalties if it fails to deliver – a development that is possible, considering Nigeria’s oil production is fraught with uncertainties.
Rainy-day fund almost depleted
In a season where other major oil producers like Saudi Arabia and small producers like Guyana and Bahrain are laughing all the way to the banks due to higher oil price, Nigeria has struggled to benefit from surging crude prices due to pipeline theft and years of underinvestment that have limited oil exports.
The Nigerian government’s response has complicated matters. On Buhari’s watch, fuel subsidies and big-ticket projects have sapped state coffers including the Excess Crude Account (ECA) in recent weeks.
The ECA was created by the administration of former President Olusegun Obasanjo in 2004 for the purpose of saving oil revenue in excess of the budgeted benchmark and had a balance of $20 billion as at January 2009.
But the country’s rainy-day fund nose-dived from $2.1 billion to $376,655 as at June 2022 during this administration.
