By Sam Diala
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) struck a fiscal chord recently that should compel attention from those who share in the concern that Nigeria is heading towards fiscal crisis of severe magnitude.
At the end of its 271st meeting, the first in fiscal 2020, the CBN in its Communique of the MPC session held on the 23rd and 24th of January, 2020, among many critical issues, drew attention to the nation’s mounting debt profile.
The apex bank Committee on monetary policy matters warned the Federal Government against accumulating debt without considering the dwindling revenue trend.
It observes that this impacts negatively on efforts to grow the economy as well as worsen fiscal expenditure pattern that do not improve the welfare of the people.
Above all, the MPC cautioned against using debt-to-gross domestic product (GDP) ratio as reason for accumulating debts and going for more debts.
The caution was not only timely but a great relief to concerned Nigerians over the stiff-necked insistence, on the part of government functionaries, that Nigeria has no debt challenge, but revenue – even in the midst of rapidly declining revenue performance in recent years.
Misplaced optimism?
In an interview granted to Arise Television at the recent 50th World Economic Forum (WEF) in Davos, Switzerland, Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, reiterated her position that Nigeria has no debt problem, but revenue problem, arguing further that Nigeria is comfortably positioned within the acceptable debt sustainability threshold.
“Nigeria has a revenue problem, not a debt problem. Our debt today is still just 19 per cent of our GDP, the World Bank and the IMF recommends that an economy the size of Nigeria needs to have borrowed up to 50 per cent of GDP, but we are only at 19 per cent.
“Why I call it a revenue problem is that our revenues are underperforming and debt service obligation is a struggle for us.
“To address that, we are working to increase revenue but, we are also working to reduce our cost of borrowing by refinancing our older domestic loans that are quite expensive in term of rates and also expanding the tenure so that the debt payment obligations can become easier.”
While presenting the budget breakdown in Abuja late last year, the minister said, “We have heard repeatedly that Nigeria is inching towards a debt crisis and we have consistently said that Nigeria does not have a debt crisis.
“Our total borrowing rate is just under 50 per cent of our GDP, while the multilateral institutions project for a country to borrow from 50 to 55 per cent of the Gross Domestic Product (GDP).
“What we have, is a revenue problem. Our revenue performance by half year is 58 per cent. So, we have designed this Strategic Revenue Growth Initiative early this year, which has three thematic areas.”
But revenue problem cannot exist on one leg, without affecting the other leg – debt. It is therefore not appropriate to divorce debt problem from revenue challenge, more so when the nation borrows to service borrowed funds.
Sour trend
Since the beginning of President Muhamadu Buhari-led administration in 2015, revenue performance has hovered around 55 per cent of budget target, resulting in huge shortfalls that caused unprecedented borrowing. Of course, this goes with huge provisions for debt servicing – now up to 60 per cent of annual revenue.
For instance, the 2017 fourth quarter Budget Implementation Report (BIR) showed huge variance between the full year revenue projection and the actual sum realised. Out of N5.084 trillion projection of Federal Government retained revenue, the report showed that only N2.377 trillion was realised, representing 46.75 per cent performance and a variance of 53 per cent.
The performance does not show significance change when other non-budgeted revenue heads are included. For instance, while statutory deduction from the Nigerian National Petroleum Corporation, NNPC, and exchange rate differential brought the total actual collection to N2.657, the effect represents 52.27 per cent of the budgeted revenue and a variance of about 48 per cent for the period.
An analysis of the projected and earned revenue profile revealed a frightening trend. Of the projected N2.122 trillion share of the Federal Government oil revenue during the period, only N1.125 trillion was actually realized. This amounts to a 53.01 per cent performance creating a variance gap of 32 per cent.
The story was not different in the case of the non-oil sector: The Value Added Tax (VAT) was projected to yield N241.92 billion; but only N130.05 billion was actually realized – representing a 53.75 per cent performance and 46.25 per cent variance gap.
The expected revenue from Company Income Tax (CIT) during the period was N807.82 billion while only 67.26 per cent was realised amounting to N543.34 billion, a variance of 32.74 per cent.
The performance of projected Custom and Excise revenue of N277.56 billion was a better narrative than the other non-oil sub-heads as it recorded a N262.41 billion or 95.26 per cent performance. Independent revenue projection of N807.57 billion recorded a mere 36.5 per cent performance or 63.5 per cent variance with actual realization of paltry 295.29 per cent.
On the expenditure side, a projected personnel budget of N1.884 trillion was executed 99 per cent at N1.866 trillion. Debt service projection of N1.663 trillion was executed at N1.634 trillion or 98 per cent performance.
The combined performance of personnel and debt servicing budgets amounting to N3.502 trillion exceeds the overall realised revenue by a whopping N844.88 billion.
This implies that Nigeria borrowed N844.88 billion to pay salaries and service debts. Expenditure N1.6 trillion on capital budget was also borrowed. This shows that the projected deficit of N2.356 trillion shot up to N3.805 trillion.
This means that about 70 per cent (68.62) per cent of our revenue is used to pay debts while the N2.765 trillion representing overall recurrent expenditure is higher than accrued Federal Government revenue of N2.657 trillion.
Cautious Route
Admittedly, the recently enacted Finance Act will go a long way in addressing Nigeria’s current revenue drought challenge, the CBN pointed out that the gains of the Finance Act could be easily wiped out considering the vulnerability that the economy is exposed to.
It warned that harping on revenue growth alone without addressing the downside that devours the gains attained in such feats would defeat the purpose because fiscal improprieties still dominate the nation’s governance landscape.
The MPC said, “On fiscal operations, the Committee applauded the Government for the recent signing of the 2020 Finance Bill which opens a new vista of opportunities in public financial management.
“The MPC, however, cautioned that public debt was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the debt to GDP ratio.
The Committee went extra steps to suggest the way out — bordering on efficient public financial management including creating buffers, diversifying the economy and rationalizing fiscal expenditure.
The Committee recommended ‘saving for the rainy day’ as one of the key buffers. It urged the Government to resolve not to be sharing among the three tiers of government all the proceeds from the Federation Account at the monthly Federation Accounts Allocation Committee (FAAC) meetings. Such a caution by the Fiscal Authorities, the MPC said, would help avert a macro-economic downturn, in the event of an oil price shock at the international market which occurs from time to time.
Furthermore the Committee noted that the stride towards diversification of the economy should assume greater zeal than has been. It urged Government to take urgent steps to achieve concrete results in reducing reliance on oil revenue, while pursuing aggressive tax reforms.
The expected economic development will not happen if Government does not address the lingering challenge of waste, corruption and huge cost of governance. The Committee therefore urged government to rationalise fiscal expenditure towards reducing the culture of excessively high cost of governance.
Amid huge leakages in the budget, bloated bureaucracy, high personnel cost, worsening spate of corruption, monumental cost of subsidising petroleum products, rising insecurity that affects food production among others, the CBN voice of caution should be given the attention it deserves.