MON, 25 JULY, 2022-theGBJournal| The figures released by the Finance Minister, Mrs. Zainab Ahmed, during the presentation of the 2023-2025 Medium Term Expenditure Framework last week, painted a gloomy and disturbing picture of the state of government finances, suggesting that the government is on the brink of bankruptcy.
Debt service to revenue ratio for the first four months of the current year is over 100%. The implication of this is that the actual revenue of government over the period is not sufficient to service debt.
‘’Therefore, financing of the operations of government – personnel cost, overhead cost, capital expenditure and even part of the servicing of the debt will have to come from additional borrowing. These portends severe vulnerabilities for the Nigerian economy,’’ according to the Center for the Promotion of Private Enterprise (CPPE) in its half year economic report seen by theG&BJournal.
The fiscal outlook is clouded by elevated downside risks in the near term, driven largely by the huge burden of financing petrol subsidy, fiscal leakages, and unsustainable public debt trajectory. The outlook poses significant risks to macroeconomic stability amid heightened inflationary pressures, depreciating currency and increasing exchange rate volatility.
The GDP growth of 3.11% in the first quarter of 2022 marked the sixth consecutive quarters of GDP growth in the Nigerian economy and offered a momentary glimmer of hope. However, the increasing economic headwinds may dim the growth prospects for subsequent quarters.
We are unsurprised by the gross underperformance, given that we had expected oil revenue to drag overall revenue performance due to low crude oil production volume and elevated subsidy cost. Indeed, oil revenue (N285.38 billion vs pro-rated budget: N730.12 billion) only recorded 39.1% performance during the revenue period.
Elsewhere, non-oil and other revenue under-performed their pro-rated budgets by 16.0% and 62.5%, respectively.
Meanwhile, although aggregate expenditure (N4.72 trillion vs pro-rated budget: N5.77 trillion) underperformed by 18.3%, we highlight that debt service (N1.94 trillion) was well ahead of the pro-rated budget by 47.0%.
Consequently, the fiscal deficit printed N3.09 trillion. At this run rate, the fiscal deficit would settle at N9.27 trillion in 2022E, which is c. 5.0% shy of Cordros Research base case expectation (N9.74 trillion) as highlighted in its H2-22 domestic macroeconomic outlook.
Accordingly, we envisage increased domestic borrowing and reliance on the CBN’s Ways & Means (W&M) as external borrowing conditions are presently unfavourable. Indeed, the actual W&M in 6M-22 was N2.45 trillion, according to the CBN.
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