‘Nigeria’s fiscal deficit to hit 6% of GDP this year’

The Federal Government’s recent announcement that it would no longer remove petrol subsidy next month, as initially planned, could result in the country’s fis- cal deficit rising to six per cent of Gross Domestic Product (GDP) this year, analysts at Financial Derivatives Company Limited (FDC) have said. The analysts, who stated this in their May 2023 “Lagos Busi- ness School (LBS) Executive Breakfast Session” presentation, noted that “Nigeria’s fiscal deficit has consistently remained above the three per cent of GDP threshold since 2019.” They predicted that the government’s suspension of petrol subsidy removal is, “likely to push fiscal deficit to six per cent of GDP in 2023,” noting that dwindling revenues and high in- terest payments are compound- ing fiscal pressures. According to the analysts, debt service costs gulped 96.3 per cent of government revenue in 2022, up from 83.2 per cent in 2021 even as revenues continue to fall short of expenditure.

New Telegraph reports that the National Economic Council announced on April 27 that it had agreed that petrol subsidy should “not be removed” as ear- lier planned for June 2023. The Minister of Finance, Bud- get and National Planning, Mrs. Zainab Ahmed, who made the announcement, said the Council agreed on the need for continued discussions on the issue adding that the FG, together with states and representatives of the incoming administration, require more preparatory work. She said: “Council agreed that the timing of the removal of fuel subsidy should not be now. But that we should continue with all of the preparatory works that need to be done and that this preparatory has to be done in consultation with the states and other key stakeholders including representatives of the incoming administration.

“Council agreed that the fuel subsidy must be removed earlier rather than later because it is not sustainable. We cannot afford it anymore. But we have to do it in such a way that the impact of the subsidy is as much as possible, mitigated on the lives of ordinary Nigerians. “So, this will require looking at alternatives to the fuel subsidy that needs to be planned for and subsequently put in place. But also what needs to be done to support the people that will be most affected as a result of the removal.” Last week, analysts at CSL Stockbrokers predicted, in a report, that this year’s budget deficit would be higher than the Federal Government’s target of N11.3 trillion.

The analysts said the fore- cast is based on their expecta- tion that Nigeria’s fiscal space will remain tight in the short to medium term. According to the analysts, the country’s public debt stock is also likely to continue to soar as a result of what they described as “present econom- ic realities.” The analysts stated: “Ac- cording to the Debt Manage- ment Office, Nigeria’s public debt stock stood at N46.25 trillion ($103.1 billion) as of December 31, 2022; when the N22.7 trillion to be securitized is included, total public debt climbs to N77.8 trillion. “Nigeria’s external debt has continued to climb, despite shrinking revenues.

External loans have nearly quadrupled in the last five years, increasing from $25.7 billion at the end of 2018 to $46 billion at the end of 2022, with debt servicing consuming about 96.3 per cent of Nigeria’s earnings according to the World Bank. “Given present economic realities, which we do not ex- pect to improve in the short term, debt levels are expected to continue to soar.” They further noted: “Nigeria’s debt-to-service ratio has been on the rise in recent years amidst Nigeria’s dwin- dling revenues. Nigeria’s debt service to revenue ratio was reported to be 80.7 per cent in 2022 according to the Minister of Finance. The World Bank, however, estimated that Nigeria’s debt-to-revenue ratio was 96 per cent, higher than what was reported by the Ministry of Finance. “Nigeria’s total debt stock rising to N77.8 trillion will take the country’s Debt to GDP ratio to 38.4 per cent. This is close to the 40 per cent benchmark contained in the medium-term debt manage- ment strategy paper and will likely reach that level in 2023 given that actual borrowing may likely exceed planned.” In addition, the analysts said: “The revised government expenditure for 2023 was estimated at an all-time high of N21.8 trillion.

Revenue projection of N10.5 trillion will likely underperform estimate, how- ever, we expect the continued economic recovery to support tax revenue. We forecast that the budget deficit will come in above the government’s deficit target of N11.3 trillion. “Recurrent spending will likely overshoot targets while capital spending will be lower than planned, in our view, oil revenue will still fall short of target, but non-oil revenue will outperform budget estimates. We expect Increased borrow- ings on the domestic market either though additional bonds or Ways and Means to finance the larger shortfall. “The fiscal deficit has sur- passed the target by an aver- age of c.65 per cent over the last five years due to ambitious revenue estimates and volatile crude oil prices.”

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