President Muhammadu Buhari, on Monday, placed travel restrictions on all his ministers, who can only now travel out of the country eight times in a year. Information, Culture & Tourism Minister Lai Mohammed, who disclosed the new restrictions said Buhari directed that no Minister should go on foreign trips more than twice in a quarter. Also, no minister on a trip outside Nigeria should go with more than four aides. He also disclosed that government officials below the rank of ministers are henceforth entitled to fewer aides. Besides, estacode would no longer be calculated on an hourly basis.
After the first four years and barely eight months into his second term, not many reasonable and patriotic members of the ruling All Progressive Congress (APC) can claim without fear of contradiction that the Buhari administration has done anything crucial to douse the chronic poverty and insecurity in the nation; but rather things are getting worse with no sign they will get better. Analysts are unanimous in their opinion that a financial blow stares Nigeria in the face in 2020; no thanks to the somber mix of an $83 billion debt; rising recurrent expenditure; increased cost of debt servicing; sustained fall in revenue; and about $30 billion debt plan waiting for legislative approval. Things could even get worse if anticipated punches from the global economy – like Brexit, the US-China trade war, and interest rate policy of the US Federal Reserve Bank hit Nigeria below the belt.
The nation’s debt stock, currently at $83 billion, with huge debt service provision in excess of N2.3 trillion in 2019, is set to rise in 2020 by about $30 billion as the National Assembly looks into the debt plans. The culprit is the country’s revenue challenge, which has remained non-responsive in the last five years, even as borrowings persist; indicating the economy faces strong headwinds and is primed for recurring tough outcomes. Sources have quoted the newly appointed chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami, reportedly lamenting the revenue shortfall, despite several initiatives aimed at ramping up inflows. He was quoted as saying: “Despite the rise in the service’s workforce, the engagement of consultants, the rise in inflation and the exchange rates, the tax revenue collection continues to dwindle.”
During the 2019 fiscal year, despite claims of improvements in revenue flows, the federal government recorded hundreds of billions in budgetary shortfalls in all the quarters, with November alone logging N218.05 billion. Data from the nation’s quarterly economic report shows the revenue crisis is not getting any better. It notes that in the three quarters ending September 30, 2019, the government recorded a deficit in excess of N1 trillion. An analysis of the report of the 2018 budget performance shows that the government spent N7.51 trillion based on total revenue of N3.86 trillion, creating a deficit of N3.64 trillion, an indication all is not well. The civic-tech organization, BudgIT, noted that while government planned to earn N7.16 trillion in 2018, it was only able to amass N3.85 trillion, which represents 54% revenue performance.
According to BudgIT, the government is also spending more on debt servicing even as its debt profile skyrockets simultaneously. Although it recorded revenue of N3.85 trillion, the government spent N5.86 trillion on recurrent expenditure, meaning that N2 trillion was borrowed to fund recurrent expenses.
“In 2018, the Federal Government spent N2.09 trillion on servicing public debts, a figure that grew from N1.63 trillion in 2017. As it is, the Federal Government is spending so much on servicing debts, while it plans to even borrow more. The government borrowed a total of N1.74 trillion in 2018, yet, the sources for additional deficit (borrowing) of N1.9 trillion were not stated in its report,” it said; stressing the need for details of public expenditures for proper verification and public accountability. It is clear Nigeria has a huge revenue problem and the current pace of recurrent expenditure growth (mainly salaries and debt servicing) is not sustainable.
Economists worry that the Buhari administration’s position over the country’s rising debt profile, which has since passed crisis point, is too pedestrian. The rhetoric by the Minister of Finance, Zainab Ahmed and former Budget Minister, Udo Udoma, which has been reechoed by the Minister of Information, Lai Mohammed to the effect that Nigeria’s total debt to Gross Domestic Product (GDP) ratio is below 50% and that the multilateral institutions projected a country like Nigeria to borrow up to 55% of GDP are lame excuses which raises certain posers: Will the 50% borrowing pay off the national debt if the funds are squandered on frivolities? What does Lai Mohammed understand as debt crisis? Is it when the country cannot repay at all? If you service your debt with a quarter of your total budget or use more than 60% of your income to service debt, are you better off? The truth is that Nigeria has a debt problem and 2020 will be challenging.”
While presenting the 2019 scorecard of the Buhari administration on Monday, Lai Mohammed had stated: “There is yet no cause for alarm. This is because Nigeria has a debt ceiling of 25 percent in the total public debt stock to Gross Domestic Product (Debt/GDP), which it has operated within. The ratio for December 31, 2018 and June 30, 2019 were 19.09 per cent and 18.99 per cent respectively.” Similarly, government’s recurrent expenditure, which has been on the rise in the last four years, will distort government’s economic projections further in 2020, as the new minimum wage adds to huge costs associated with governance. While the recurrent expenditure increased to N5.39 trillion in 2018, representing N800 billion growth in one year without new minimum wage implementation, just in November 2019, the Federal Government spent 95.9% of its resources on statutory transfers (7.2%) and recurrent expenditure (88.7%), leaving only 4.1% for capital projects.
Despite its repeated mantra of cutting down waste, improving efficiencies and removing ghost workers from the payroll, the federal government’s personnel costs actually rose from N1.8 trillion in 2017 to N2.1 trillion in 2018, without the full implementation of the new minimum wage of N34,000. The manifest unresolved contradictions are glaring because actual recurrent non-debt expenditure was N2.51 trillion in 2016; N2.76 trillion in 2017; and N3.103 trillion in 2018. From January-June 2019, it reached N2.05 trillion, which is 21% more than the pro-rated value of recurrent non-debt expenditure in the 2019 budget. This increment to N4.88 trillion in 2020 cannot be the sign of a system that is taking steps to remove waste and inefficiencies.
Undoubtedly, the rising debt service was crowding out expenditure in critical infrastructure and human development. If revenue shortfalls persist, salaries, and overheads will be drawn down, debts will be serviced, but capital projects will suffer. This will not make Nigeria better, even with expectations that the country’s debt profile would improve in 2020 following (a) approval of $3 billion credit facility from the World Bank for power sector reforms, (b) possible ratification of $29.96 billion loan request for infrastructural development, (c) wider fiscal deficit (2020: N2.7 trillion; 2019:N2.1 trillion), and (d) increased appetite for government securities by institutional investors following their exclusion from Open Market Operations (OMO).
Such expectations will remain, at best a luxurious desire given that the rising indebtedness of the economy and the increased debt stock will neither stimulate economic growth nor infrastructural development. Given Nigeria’s revenue challenges, the country will continue to spend a large chunk of its earnings to service debt. The opportunity cost of high debt service commitment for the economy and citizens is very high. There is also the exchange rate risk inherent in the exposure to mounting foreign debt, which the Buhari administration needs to worry about. As the naira depreciates, the burden of debt servicing would intensify. This is a major problem with Nigeria’s rising debt profile which will not be resolved with token restrictions on travel by Ministers and other public officials.