Over two decades, fiscal deficit has remained a predominant occurrence at both the federal and state government levels in Nigeria, and it has become a source of worry to economists and concerned citizens.
A budget is an estimated expenditure and revenue for a period of time usually one year. It is a fiscal deficit when the estimated revenue is less than the estimated expenditure. Nigeria’s fiscal deficit for 2021 amounted to about N6.45 trillion. The fiscal deficit for 2022 may exceed N8 trillion, considering the amount of money the Nigerian National Petroleum Company is demanding for fuel subsidies.
A fiscal deficit is not bad in itself; it becomes bad when it is being used to sustain recurrent expenses rather than infrastructure development. The case of Nigeria is worrisome as the fiscal deficit has been used to sustain recurrent expenditures.
A fiscal deficit comes with high levels of government borrowing from domestic individuals and institutions. Fiscal deficits can also compel the government to borrow funds from international financial institutions such as the World Bank, International Monetary Fund, and others to finance its huge expenses.
Nigeria’s government has accumulated huge debt over the years. According to the Debt Management Office (DMO), Nigeria’s public debt stock climbed to N39.6 trillion in 2021 from N32.9 trillion in 2020. Nigeria spent about N2.5 trillion on debt in the nine months of 2021, according to the data obtained from the DMO.
The government’s borrowing to finance the fiscal deficit may crowd out private investment, aggravate interest rates, and reduce access to investment funds in the ecosystem. The difficulties of accessing investment credit due to the crowding effects of government borrowing have the potential of stifling production, which may lead to high unemployment, inflation, and the closing of some companies.
In an attempt to generate additional revenue to finance the 2022 fiscal deficit, the Nigerian government introduced an excise duty of N10 per litre on carbonated soft drinks. The introduction may cause inflation to rise above the projected 13 percent and the unemployment problem to increase.
The question that comes to mind in deteriorating macroeconomic situations in the case of Nigeria is: are there ways Nigeria’s government can reduce deficit financing? There are several ways the Federal Government can avoid a fiscal deficit in the interest of Nigeria.
Nigerian governments need to reduce the cost of governance. Nigeria’s revenue-to-GDP ratio is very low, yet the cost of governance over the years has been very high and unattainable as recurrent expenditure continues to significantly exceed capital expenditure.
Nigeria runs one of the most expensive governments in the world, according to Sanusi Lamido Sanusi, a former governor of the Central Bank of Nigeria. The Revenue Mobilisation Allocation and Fiscal Commission has been at the forefront of calls for a reduction in the day-to-day cost of government expenditure.
Nigeria’s government must exercise its power to merge the ministries, departments, and agencies performing similar and overlapping functions to reduce the cost of governance.
Political offices should be made less attractive. The cost of running political offices in Nigeria is on the high side when compared with the low revenue generation base of the government. The political officers are always voted for to serve the people, but not to make life unbearable for them.
There is a need for public-private participation in infrastructural development to make the country more attractive to both domestic and foreign investors. Adequate infrastructure has the full potential of promoting investment, employment, output, income, and government tax revenue.
The Nigerian government must strive to reduce corruption. The Nigerian budgeting system is characterised by fraud, according to Godwin Obaseki, the Edo State governor. Government officials charged with the duties of national budgeting should have the interest of Nigeria at heart. They should understand that there is no other Nigeria anywhere. They should endeavour to be honest in the budgeting system to save Nigeria from collapse.
The Nigerian government can avoid a fiscal deficit in the interest of Nigeria. Fiscal deficits have the potential of causing several macroeconomic problems such as high-interest rates, current account deficit, inflation, unemployment, and crime in the ecosystem. There is an urgent need for the Nigerian government to exercise fiscal discipline by cutting down and avoiding unproductive expenditure to avoid a fiscal deficit.
Felix Ashakah is an economics Lecturer at Western Delta University, Oghara
