Nigeria spends 96.3 percent of revenue on debt servicing in 2022 from 83.2 percent in 2021 which shows how the fiscal deficit has worsened the nation’s public debt stock, the World Bank has said.
The World Bank said in its Macro Poverty Outlook for Nigeria: April 2023 report that in 2022, the cost of the petrol subsidy increased from 0.7 percent to 2.3 percent GDP. Low non-oil revenues and high interest payments compounded fiscal pressures.
“The fiscal deficit was estimated at 5.0 percent of GDP in 2022, breaching the stipulated limit for federal fiscal deficit of 3 percent. This has kept the public debt stock at over 38 percent of GDP and pushed the debt service to revenue ratio from 83.2 percent in2021 to 96.3 percent in 2022,” the multilateral institution said.
The World Bank forecasts Nigeria’s fiscal and debt pressures to increase if the petrol subsidy is not phased out in June 2023, as envisaged in the 2023 budget.
“The authorities can strengthen the economy by restoring macroeconomic stability through reforms to increase oil and non-oil revenues, tighten monetary policies to reduce inflation, and unify the multiple FX windows and adopt a single, market responsive exchange rate,” World Bank said in the report.
The oil sector, historically the main contributor to fiscal revenues and accounting for about 90 percent of total exports, has underperformed since 2020, the World Bank said, adding that declining oil production and the mounting cost of the petrol subsidy have prevented Nigeria from reaping the benefits of higher global oil prices.
Read also: Nigeria, Norway sign $6m solar energy deal
“The weakness in oil production stems from technical and security challenges in the oil-producing Niger Delta region, aging infrastructure and inadequate investments in the sector, and the Nigerian National Petroleum Company’s (NNPC) delays in paying for the government’s share of costs in joint-venture operations.
It further revealed that in 2022, oil revenues, the fiscal deficit outturn, FX reserves, and economic growth decoupled from the cycle of higher global oil prices. “GDP growth decelerated from 3.6 percent in 2021 to 3.3 percent in 2022. Growth was driven by manufacturing, construction, and most services.”
In contrast, the oil sector shrank by 19.2 percent, the World Bank said while citing that from the demand side, growth was driven by private consumption and investment.
“Inflation reached an annual average of 18.8 percent in 2022, a 21-year high. Food inflation in 2022 is estimated to have pushed five million Nigerians into poverty,” The World Bank said.
The multilateral institution further revealed that the increase in inflation resulted from higher global commodity prices, the sharp depreciation of the parallel market exchange rate, floods that impacted several states, and the monetization of the fiscal deficit.
“Nigeria’s fiscal position has deteriorated since 2015 due to declining oil revenues and rising expenditures, resulting in persistently high fiscal deficits.
“To finance the growing deficit, the government has resorted increasingly to costly financing from the Central Bank, which in turn has increased interest costs, crowding out private sector credit, and contributing to inflation,” it said.
The World Bank stated that persistent structural economic issues which include volatile growth, low private investment, low and inefficient public spending, due to low revenue collection, and low social development outcomes leading to low productivity have prevented any meaningful acceleration of growth.
