It’s official. The country is currently in fiscal distress. Crude oil is currently trading at an all-time high in a very long time, and yet the nation isn’t reaping the immense benefits. Debt servicing exceeds revenue; investors are leaving the country, and factories are being shut down high rates of importation.
All these scenarios show that the country is in a financial predicament. Nigeria recorded a N2.05 trillion increase in national debt as it rose from N39.56 trillion in December to N41.6 trillion in the first quarter of 2022. Domestic debt obligations account for $60.1 billion out of the current Federal Government debt stocks.
In a report released by the current minister of finance, Dr Zainab Ahmed, The estimated revenue for the first quarter of 2022 was projected to be N3.32 trillion. However, The federal government earned N1.63 trillion at the end of April 2022. As a result, a massive shortfall of 1.69 trillion Naira was recorded within this time frame.
The big question remains: will Nigeria ever stop borrowing? Not any time soon. Amid deficit spending and lacklustre revenue, efforts have to be made to ensure that budgets are being implemented, projects are carried out, and former debts must be serviced amongst a couple of others.
A premium Times report shows that the government borrowed 3 trillion Naira in the first three months of 2022. A bulk of this loan went into financing recurrent expenditures, including and not limited to loan servicing and payment of government officials.
In the year’s first quarter, it was analysed that N1.94 trillion was used to service the national debt, and N1.26 trillion was used to offset personnel costs and other expenses. Meanwhile, N773.63 billion was expended on capital projects like the construction of hospitals, railways, power generation, bridges and other capital projects.
Ideally, loans should be gotten to fund capital projects. Projects meant to ease the life of citizens, enhance the ease of doing business, attract foreign investors and also be a source of revenue generation when adequately utilised. However, using public debt to fund recurrent expenditures such as payment of salaries is detrimental to a nation’s progress. Globally, borrowing from lenders should be used to finance capital expenditures, but reverse is the case in Nigeria.
It’s important to note that excessive borrowing will be detrimental to the nation’s economy if adequate measures aren’t taken to boost revenue generation in the country. If care isn’t taken, there might be an increase in tax rates to offset the debts and their interest, a breakdown in government services and the establishment will be on the rise due to lack of funds, and gradual rot in all sectors of the economy if the nation eventually defaults on its debt.
To address the issue of continued borrowing, the government should establish a standard framework that would guide lending in the country. Funding capital expenditures should be the main focus of loans instead of catering to recurrent expenditures that have no gains in the future of the country’s finances.
Efforts should also be made to boost revenue drive in the country. Development of the Abundant Human resources in the nation, rapid prosecution of corruption cases, and adequate responses to the ongoing security crises are just a few of the measures that can be put in place to ensure revenue generation in the country.