Nigeria will require about N7.38 trillion in new loans from May to December 2022 due to its inability to generate adequate revenue in the first four months of 2022, BusinessDay analysis has revealed. And with the factors responsible for the poor revenue generation still ravaging, the federal government is left with no options but new loans to augment its revenues in order to remain solvent in 2022 and beyond.
At the presentation of the budget performance last Thursday in Abuja, the minister of finance, budget, and national planning, Zainab Ahmed, said that Nigeria realized N1.23 trillion revenue between January and April 2022, which amounted to 39.4 percent of the pro-rata target of N3.12 trillion for the same period. Full-year 2022 revenue target is N9.36 trillion.
According to the minister, the government spent N4.72 trillion as an expenditure against the pro rata target of N5.77 trillion for the same period. She stated that the components of expenditure included debt servicing which gulped N1.94 trillion; expended N1.26 trillion as personnel costs including pensions, while N773.63 billion was spent as capital expenditure.
The synthesis of the fiscal data presented by the finance minister shows that Nigeria’s actual expenditure for 2022 will be in the region of N14.16 trillion in contrast to the projected expenditure of 17.32 trillion in the 2022 Appropriation Act.
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On the whole, the difference between the full year’s possible revenue of N3.69 trillion and expenditure of N14.16 trillion will be N10.47 trillion, and having incurred N3.09 trillion in the first four months of the year, the balance of N7.38 trillion will constitute Nigeria’s new loans from May to December 2022.
Data sourced from the Debt Management Office confirm Nigeria has started amassing debts as the reality of poor revenue generation dawned on the government. The federal government sourced an additional $1.58 billion in external loans in Q1 2022. This is because foreign debts rose from $38.39 billion in December 2021 to $39.97 billion in March 2022.
Also, the government equally sourced new N901.47 billion in domestic loans during the first quarter of 2022, because the domestic debt increased from N19.24 trillion in December 2021 to N20.14 trillion as of March 2022. The rising debt obligations explain why from January to April 2022, debt servicing gulped N1.94 trillion, which surpassed the actual revenue of N1.23 trillion made during the period.
“The fact that the government is losing revenue from stolen oil, which was heavily subsidised in every aspect of our national life will continue to impact the deficit gap. From FX subsidy to fuel subsidy and power subsidy means the government is losing revenue to fund intangible development”, Fatai Asimi, a Lagos-based market intelligence analyst, said.
“We are likely to see sustained local borrowing and thus crowding out the private sector in the credit market. The banks’ lending to the private sector is dwindling and not likely to change in the near term. The chances of government borrowing from the international market may be slim due to the general hike in interest rates across the various economies”, he added.
Meanwhile, the loan option comes at a higher cost in view of the hawkish stance of the Central Bank of Nigeria (CBN). Between April and July, the CBN raised the Monetary Policy Rate (MPC) twice, cumulatively by 250 basis points from 11.5 percent to 14 percent in response to external factors, directly increasing the cost of borrowing for governments, businesses, and households.
Despite the hike, investors’ interest in Nigeria’s fixed income instruments waned in July as the DMO was unable to raise all the amounts offered at the July auction.
The bond auction was oversubscribed in June 2022 following the allotment of N226.15 billion to investors against N225 billion on offer. However, the Nigerian government raised just N123.84 billion out of N225 billion on offer at the July 2022 auction.
“Higher cost of borrowing means that consumers are more likely to default now on their borrowings from banks. Higher interest payments by the government on new bonds and treasury bills are not good for the authorities”, Tajudeen Ibrahim, senior analyst with ChapelHill Denham, said.
Yields on Nigeria’s Eurobonds have risen just as their prices are heading southwards, increasing the cost of borrowing for the government from overseas, thus foreclosing Eurobond as an alternative financing option for the remaining part of the year.
Analysts also believe that it will take a while before the federal government will increase revenue generation through higher crude oil production due to crude oil theft and pipeline vandalism. The Organisation of Petroleum Exporting Countries (OPEC) reported that Nigeria produced 1.299 million barrels of crude oil per day in the first quarter of 2022. The country produced 1.219 barrels per day in April, 1.024 million barrels per day in May, and 1.158 million barrels per day in June as against 1.8 million barrels per day allocated to it by OPEC.
