State spends more money servicing debts than on education
Nigeria faces a dilemma of rising population, slow GDP growth
Bloomberg yesterday reported that there are growing fears that Nigeria could soon struggle to fund its expenses unless it’s able to increase revenue collection.
According to the news agency, fiscal revenues in Africa’s most-populous nation undershot targets by at least 45% a year since 2015, according to the budget office. Expenditure has doubled to more than 7 trillion naira ($19 billion). The government’s income shortfall was 51.9% in May due to lower oil and non-oil inflows, according to the central bank.
There has been an urgent need for accelerated fiscal reform in Nigeria for some time and the fact that it is gaining attention from the country’s leadership is positive, said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc.
Spending has been largely supported by borrowing both from the domestic and international markets. Total debt was at $81.2 billion at the end of March, from about $65 billion in 2015. Debt owed to non-Nigerian lenders was $25.2 billion.
Total borrowing as a proportion of gross domestic product is about 21%, compared with almost 60% for South Africa, which vies with Nigeria as the continent’s biggest economy. Debt service costs consume more than half of actual revenues, leaving little to build badly needed infrastructure and grow the economy. Nigeria spent 2.2 trillion naira on servicing outstanding loans in 2018 compared to 1.68 trillion naira on infrastructure, according to the central bank.
Without major revenue reforms, debt could rise to almost 36% of GDP by 2024 and interest payments could make up 74.6% of revenue, according to the International Monetary Fund.
At about 7% of GDP, Nigeria has one of the lowest tax collection ratios in the world.
Efforts to boost tax revenues in recent years have not yielded the desired results. An oil price crash, a 2016 contraction and subsequent slow economic growth have reduced tax earnings, Babatunde Fowler, chief executive of the country’s revenue agency, said in response to a query from the presidency.
The country’s low tax revenues hamper its ability to invest in infrastructure, social welfare and human capital development, all necessary for robust growth, Amaka Anku, Eurasia Group’s Africa head, said by email.
“Nigeria’s government expenditure is roughly the same as Kenya’s, despite a population that is nearly three times as big,” she said.