A reserve boost from the International Monetary Fund will help Nigeria reduce next year’s spending shortfall, according to the country’s finance minister.
Africa’s biggest economy, which received an IMF allocation of $3.35 billion in reserve assets – known as special drawing rights – plans to use the funds to reduce a budget deficit that’s set to exceed a legal limit, Finance Minister Zainab Ahmed told reporters Friday in the capital, Abuja.
“We’re taking the IMF SDRs as part of the financing for the 2022 budget,” she said. “That may mean that we don’t have to borrow externally next year.”
The government still needs to negotiate the terms at which it plans to borrow the IMF funds from the central bank, said Ahmed, who didn’t specify how much of the reserves the government would use.
Nigeria, which tapped international markets last month for the first time since 2018, raising $4 billion, plans to spend 16.4 trillion naira ($39.7 billion) next year, or 18% more than initially proposed.
The spending increase is set to widen the budget deficit to 6.3 trillion naira, or 3.4% of GDP, exceeding a legal threshold of 3% stipulated in Nigeria’s fiscal responsibility law.
It’s still unclear if the IMF’s boost will help Nigeria avoid external borrowing altogether in 2022.
“That may be a possibility, but it’s too early to say,” Patience Oniha, the director-general of the Debt Management Office, said in a response to questions.
Economic analysts said Nigeria’s budget signaled the government was not about to make any major policy shift as spending would remain elevated to deal with a deteriorating security situation in many parts of the country.
The armed forces have been struggling to contain Islamist insurgencies in the northeast, a spate of mass abductions and deadly bandit attacks in the northwest, conflicts between farmers and herders in many areas and a general surge in crime.
“In the meantime, Nigeria is likely to be stuck with large budget deficits. If borrowing conditions prove to be unfavourable, the government may increasingly lean on the central bank to finance budget shortfalls,” said Virag Forizs, emerging markets economist at Capital Economics.
The World Bank has said that rising insecurity, along with high food inflation and stalled reforms, was a drag on growth and a factor in rising poverty. read more
The economy is projected to grow by up to 3% this year after it expanded by 5% in the second quarter. It contracted in 2020 due to the pandemic, though it managed to exit recession in the fourth quarter, but growth is fragile.
Buhari confirmed a previously published 2022 GDP growth forecast of 4.2% and an inflation projection of 13%.
“Our target over the medium term is to grow our revenue-to-GDP ratio from about 8 percent currently to 15 percent by 2025,” Buhari said. This would be achieved by enhancing tax and excise revenues through reforms and administration measures, he added.
Nigeria has passed a string of record budgets since Buhari took office in 2015, but the country has struggled to fund the spending plans due to low revenues. The pandemic has added to the revenue problems.
According to IMF data, Nigeria has among the lowest revenues globally, with general government revenue between 2015 and 2019 at 7.9% of GDP, compared with a Sub-Saharan African average of 12.7% and a global average of 29.8%.
Buhari said a fuel subsidy which successive governments have tried unsuccessfully to scrap, continued to erode revenues. Attempts to remove it have triggered protests and strikes.
($1 = 412.0000 naira)
Additional reporting by MacDonald Dzirutwe and Camillus Eboh Writing by Estelle Shirbon Editing by Andrew Heavens and Alistair Bell