August 11, 2022/United Capital Research

The recently released Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF and FSP) revealed that Nigeria’s debt stock rose by N2.1tn to N41.6tn (excluding the FGN’s Ways and Means outstanding, currently estimated at N20.0tn) in the Q1-2022, with c. 60.0% emanating from domestic debt stock. The report also revealed Debt servicing amounted to N1.9tn, exceeding the budget by 47.0% between January and April. In the same period, Federal Government revenues amounted to 1.6tn, underperforming against the budget by 50.9% in Q1-2022.

The nation’s already fragile debt profile has been continually threatened by ailing Oil Revenue, which has been dragged by the high importation costs of PMS and Oil production shortfalls resulting from reduced production, theft, and vandalism. As a result, Oil Revenue declined and stood at N1.2tn against a projected N3.1tn in Q1-2022. This was despite prices exceeding the benchmark of $70 (Brent crude averaged $104.5 in 2022). The underperformance is mainly due to weaker than projected oil production, with crude oil production averaging 1.32mbpd as of Apr-2022 (compared to the budget benchmark of 1.60mbpd). On the other hand, Non-Oil revenue performance stood at 84.0%, driven by the strong performance in the collection of a Company Income Tax (CIT) (99% of its target) and Value Added Tax (VAT) (98% of its target). Ailing revenue and incessant spending on recurrent expenditure have (grown 152.8% from N3.6tn to N9.1tn in the last five (5) years) increasingly led the FGN to seek debt financing. Subsequently, Debt servicing to revenues stood at 88.1% in 2021, increasing from 84% in 2020.

In conclusion, overall economic performance has averagely returned N4.3tn achieving 70.0% of the budget in the past five (5) years, and the Oil revenue achieved 68.0% of the target averaging N2.0tn in the same period. The FGN efforts to grow its Non-Oil revenue has been amicable, with Non-Oil revenue performance returning 1.9tn averagely in the same period and achieving 94.0% of the budget. Despite the nation’s 22.3% debt to GDP ratio (still below the fixed ceiling of 40.0%), the debt servicing to capital expenditure has risen significantly to 250.0% as of Q1-2022, against 140.0% for FY-2021 Indicating despite rising debt stock the nation’s investment in CAPEX has reduced relatively over time further reducing the nation’s ability debt sustainability.