The year 2020 has been a historic year in Nigeria for so many wrong reasons. From the crude oil price meltdown to the outbreak of coronavirus that has killed thousands to the first-of-its-kind nationwide lockdowns that crippled the nations’ economy to the nationwide youth protests against police brutality to the shocking show of force used by Hoodlums, the Police and the Nigerian Army on peaceful protesters resulting in several deaths, the year 2020 has been a non-stop rollercoaster of the most scary reality Nigerians have ever had to face, all happening simultaneously.
In response to the 5 for 5 requests put forward by the Youth Protesters, the President of the Federal Republic of Nigeria, Muhammadu Buhari, promised to raise the salaries of the Nigerian Policemen, Paramilitary workers, and Teachers. This salary review decision and the decision to increase the national budget by more than N3 trillion (or 30% spending increase) therefore puts an increased pressure on the Federal Government’s already terrible finances and shines a bright spotlight on the dire and critical financial situation of the Federal Government.
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Data compiled from the breakdown and highlights of 2020 budget performance presented by the Minister of Finance, Budget and National Planning, Zainab Ahmed, showed that in the first 7 months of the 2020, that is between January and August 2020, N2.5 trillion in revenue and spent about N6.25 trillion creating a record budget deficit of N3.7 trillion. At this pace, analysts suggest that the government may generate roughly about N4.3 trillion in revenue, spend N10.7 trillion in expenditure and end the year with a historic deficit of almost 6.4 trillion! To put this figure into perspective, Nigeria budgeted to spend just N6.06 trillion for the entire year in 2016. Today the deficit is on track to exceed that figure in just one year. In fact, total government spending in 2018 alone was N6.94 trillion according to the government. This means that the government is creating debt today at a record pace never before seen in Nigeria’s history.
This reckless behaviour by the Federal Government has now pushed the budget deficit to revenue to 174 percent as at August 2020. The debt service burden has worsened to 85% this year as a total of N2.1 trillion was used to service the national public debt compared to revenue generated of just N2.5 trillion as at August 2020. As at H1 2020, the Debt Management Office reported that the national public debt had reached N31 trillion.
Analysts from EUA Intelligence told Businessday that they fear that if the 1 year treasury yield was more market reflective and rose to a price of around 14% on local debt and 8% on Eurobond to reflect the rising rate of inflation in the country and current market average market yield on Nigeria’s Eurobonds, it will add an additional N1.08 trillion to the national debt service, which will put the debt service ratio of Nigeria from 85 percent today to 128 percent, effectively almost bankrupting the nation but forcing it to pay far more in debt service than it is able to generate in revenue.
“If the country fails to take adequate steps to improve its revenue performance, then it must cut its spending significantly rather than increase it. The excessive spending has failed to generate the promised economic growth and is on the verge of pushing the country towards a debt overburden situation which is terrible for the economy,” said an analyst from EUA Intelligence.
With the government now planning to increase its personnel expense which analyst forecast will hit N3.3 trillion this year (after posting N1.9 trillion personnel expense as at August), the only feasible way to pay for the salary increment as our finances are today is to carry more debt which unfortunately is dangerous for the government’s finances today.
If the country fails to take adequate steps to improve its revenue performance, then it must cut its spending significantly rather than increase it
