Nigeria’s expenditure continues to outpace revenue, pointing to the fact that it is high time for those at the helm of affairs to implement appropriate policies that would stimulate the country’s quivering revenue base.
The assumptions of the 2019 budget show that government would borrow about N1.8 trillion to finance a projected N1.9 trillion deficit. Worse still, the Federal Government’s borrowing plan, as disclosed by the Debt Management Office, reveals that funds would be borrowed from the local money markets to finance the 2018 budget in Q1 2019.
The government planned N9.12 trillion in the 2018 budget, against an aggregate revenue of N7.16 trillion. Fiscal deficit stood at N1.95 trillion and accounted for 1.73 percent share of the GDP.
In 2017, government budget was N7.28 trillion relative to an aggregate revenue of N4.94 trillion, and fiscal deficit stood at N2.36 billion, accounting for 2.18 percent share in GDP.
Fiscal deficits have been blamed for the assortment of ills that besets developing economies for a number of years. Of a truth, deficit financing or fiscal deficits within moderate level help to drive aggregate demand. However, huge fiscal deficits create the problem of indebtedness and also kill investment through crowding out credit from the private sector.
“Deficit is threatened by disappointing revenue, notwithstanding the upsurge in the price of oil which naturally feeds into a wider deficit that will leave government with limited options than to borrow, thus shrinking available credit to private sector,” says Timothy Olawale, director-general,
Nigeria Employers Consultative Association.
The World Bank said late last year that over-reliance on ‘small oil sector’ (less than 10 percent of GDP) for revenue and foreign exchange fuels the country’s rising fiscal deficit profile and posited that revenue would continue to trend upwards in subsequent years.
Nigeria practices the American-style presidential democracy. In the American case, however, allocations are not given to state governments from the central government but state governments as federating units survive on internally generated revenue (IGR) and/or private-sector funding, unlike in Nigeria where most state governments depend on federal allocation as their IGR is of no significance.
Kayode Fadahunsi, chief executive officer, Prosperis Holdings, said of the sources of revenue, the only area that has not been properly harnessed is dividend revenue through state government investment in private projects.
“State governments can collaborate with the private sector by investing in projects/businesses, that is, establishing state corporations or allowing private sector run some of the companies and the states can re-coup revenue and capital from these companies,” Fadahunsi posited.
The fact that state governments are yet to generate revenue from dividends is an indication that they are yet to invest robustly in the private sector.
Gombe State, for instance, was created in 1996 with more than N100 billion allocation from the Federal Government. Meanwhile, Guaranty Trust Bank started operations in 1991 with less than N100 billion shareholders’ funds.
Today, Gombe has an IGR of about N7 billion monthly, one of the lowest in Nigeria, whereas GTBank recorded gross earnings and net profit of N111 billion and N46 billion, respectively, in Q3 2018. If Gombe had invested about 60 percent in GTBank in 1996, the state would have been much more financially buoyant than its present situation, just by receiving dividends as a major shareholder.
Lagos State has the highest IGR in Nigeria and has remained the only state that has been devising various strategies to fund its infrastructural needs. The state’s agreement with Lekki Concession Company (LCC) Limited for construction of the Lekki-Epe Expressway Toll Road, regarded as Nigeria’s first ever Public Private Partnership (PPP) project, loosened public funds that could be dissipated towards other key sectors and equally hastened projects delivery.
This is a template other states can adopt to strengthen their revenue base. Private-public partnership has gained prominence in the global economy and remains a veritable stream of revenue that can help tackle the deficit issues of most state governments and, consequently, the Federal Government.
Israel Odubola
