The World Bank warned in June that Nigeria was facing what it described as a “fiscal time bomb” due to petrol subsidy and low oil production.
With less than 70 days to the 2023 general election, Nigeria’s next president is expected to inherit the daunting tasks of tackling slowing economic growth, controlling inflation, reversing falling foreign reserves, and transform the country’s fiscal and current account deficits into a surplus.
Ahead of the election that brought President Muhammadu Buhari into power in 2015, he promised to diversify the economy, which relied heavily on petrodollars but was falling short of creating the required number of jobs for its teeming population.
Few months to the end of his second and final tenure, the economy remains reliant on crude oil revenues. The two recessions experienced during Buhari’s administration were triggered by low oil prices.
Here are seven charts that show the country’s fiscal fiasco.
Slippery slope with foreign reserves
Being an oil-rich country, Nigeria should be brimming with foreign reserves in 2022 due to the Russia-Ukraine war. However, its reserves are feeling the pain of its reliance on the commodity for forex inflows and its attempts to arrest the slide in the naira.
According to FBNQuest, the sharp drop in the FX reserves is mostly due to the Central Bank of Nigeria’s (CBN) increased interventions on the various FX windows, such as the Investors and Exporters (I&E) and the Secondary Market Intervention Sales windows, following the difficulties with FX supply.
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Experts say another reason for the decline in external reserves is the exit of foreign portfolio investors from Nigeria.
Foreign investors reduce exposure to Nigeria
Foreign direct investors are also increasingly reducing their foreign direct investment (FDI) exposure to the Nigerian economy.
FDI is a category of cross-border investment in which an investor, company, or government resident in one economy establishes a lasting interest in another economy.
The FDI invested in Nigeria’s economy declined by 2.4 percent in the first quarter of this year from $1.57 billion to $1.53 billion in the second quarter, according to the National Bureau of Statistics (NBS).
Petrol subsidy
President Buhari’s administration has repeatedly floated the idea of ending the subsidy, but never follows through.
Cheap pump prices are popular in Nigeria — and expected, so the subsidy is unlikely to be touched ahead of the presidential elections in February.
Data from the Nigerian National Petroleum Company Limited (NNPC) showed that the country incurred an estimated petrol subsidy cost of N3.1 trillion from January to August this year.
This amount could have been allocated for the development of the health, education and defence sectors, which would have increased the economic growth and living standards of many Nigerians.
Experts say as long as the subsidy regime stays, the economy pays the price.
Unstable oil production
On February 24, 2022, the news of Russian invasion of Ukraine broke. As a result, global oil prices skyrocketed, from about $76 per barrel at the beginning of January to $130 per barrel in March.
Oil-dependent economies like Nigeria anticipated an increase in price as this means more money to fund their budgets. This, however, isn’t the case for Nigeria, Africa’s biggest economy, which has seen a decline in oil production over the past months.
Findings showed its oil production averaged 1.34 million barrels per day (bpd) from January to October as against the 2022 budget benchmark of 1.88 million bpd, costing the nation about 161.58 million barrels in lost production.
Surging inflation
Nigeria’s inflation rate rose to a new 17-year high of 21.47 percent in November from 21.09 percent in October, representing the 10th consecutive increase, according to the NBS.
According to the NBS, the increase in the year-on-year inflation rate can be attributed to the increase in the cost of importation due to the persistent currency depreciation and the general increase in the cost of production.
Struggling oil revenue
Only war-torn Somalia and Yemen’s governments are expected to earn less money relative to their economic size than Nigeria in 2022, according to the International Monetary Fund’s estimate.
Nigeria is in a bad company here with Somalia and war-torn Yemen, the only countries where the government collects less than 7 percent of Gross Domestic Product (GDP) in revenue. On average, the revenue-to-GDP ratio in frontier markets is slightly more than double of that, while in South Africa, it’s nearly 30 percent.
The official foreign exchange receipt from crude oil and gas sales into Nigeria’s official reserves has dried up steadily from about $1.9 trillion in 2014 to an absolute zero dollars today, data from the CBN showed.
Experts have cited several reasons for this decline, ranging from falling oil and gas production to rising payments for petrol subsidy, and surging government costs.
Businesses, households groan as diesel price surges
The average price of diesel, also known as automotive gas oil, has risen by more than 200 percent over the last year as the global energy crisis persists.
According to NBS data, the average retail price of diesel in October 2022 was N801.88 per litre, indicating a 215.30 per cent increase over the N254.07 per litre paid in September 2021.
The surge in the price of diesel, which has been deregulated, followed the rally in global oil prices, buoyed by the Russia-Ukraine conflict.
Esu Olumba-Obu, the group managing director of Royal Farms Ltd, said the high cost of diesel is posing serious threats to business sustainability.
“Due to the high cost of diesel, most businesses are now faced with the option of closing down or retrenching staff to survive,” Olumba-Obu told BusinessDay.
