As Nigeria finds itself in 2023, the country is grappling with a fiscal crisis that has been gradually unfolding, ominously undermining the nation’s economic stability and growth prospects. The recently released 2022 budget implementation report painted a grim picture of Nigeria’s financial health. The Federal Government ended the previous year with a staggering fiscal deficit of N7.5 trillion, exceeding the budgeted deficit by a substantial margin. This deficit represents a disturbing 129% of the actual revenue collected. The situation raised profound concerns and deserved close scrutiny, as it foreshadowed the dire straits in which Nigeria finds itself today.
One glaring issue highlighted in the report was the decline in actual revenue. In 2022, the government’s revenue amounted to N5.8 trillion, a shortfall not only from the budgeted N9 trillion but also from the N6.7 trillion collected in the previous year. The declining revenue stream exacerbated Nigeria’s fiscal difficulties, making it increasingly challenging to meet financial obligations. In this context, the government’s efforts to accelerate economic growth and improve revenue generation, as mentioned in the report, are crucial to navigating the fiscal quagmire.
The excessive expenditure on recurrent costs and debt service is another alarming aspect of the fiscal crisis. The government allocated a colossal N5 trillion to recurrent non-debt expenditure, with personal costs devouring N3.49 trillion. This left minimal fiscal space for other essential services and development projects, hindering Nigeria’s progress. Equally worrisome was the fact that debt service consumed N5.65 trillion, a staggering 97.4% of the budgeted revenue. This represented a significant increase from the 62.8% of budgeted revenue spent on debt service in 2021. As the budget office rightly emphasized, reining in the growth of recurrent expenditure, especially personnel costs, was critical for Nigeria’s fiscal stability.
Capital expenditure in Nigeria painted a disappointing picture, as it remained markedly low. The government could only muster N1.89 trillion, falling far short of the targeted N3.6 trillion. This dearth of investment in infrastructure development and long-term economic growth was a cause for concern. Investment in capital expenditure was vital for sustainable economic development, and its inadequacy further compounded the fiscal crisis.
The budget-deficit-to-GDP ratio of 3.77% was higher than the 3.0% target stipulated in the Fiscal Responsibility Act of 2007. This indicated that Nigeria was living beyond its means relative to the size of its economy. The need to address non-essential fiscal deductions to free up resources for budget implementation, as cited by the DMO, was a step in the right direction.
To better understand the gravity of Nigeria’s fiscal predicament, it was essential to examine how it affected the exchange rate. Large fiscal deficits could trigger a currency crisis by increasing the money supply, leading to inflation and devaluation of the domestic currency. In the worst-case scenario, it resulted in higher interest rates, further eroding investor confidence and triggering capital flight. A dwindling foreign reserve exacerbated the situation, eventually culminating in a balance of payments crisis. This scenario made imports more expensive, widened trade deficits, and placed additional downward pressure on the currency. Nigeria’s current struggle with currency devaluation and inflation was a testament to this complex interplay of factors.
Notably, the situation in Nigeria was not unique. Many countries had faced similar fiscal crises, often with devastating consequences. One needed only to look back at Nigeria’s own history to find instructive examples. In the 1980s, Nigeria experienced an oil price crash that led to a severe fiscal crisis. The government relied heavily on borrowing, contributing to a ballooning national debt. The economic turmoil culminated in the Structural Adjustment Program (SAP) introduced in the mid-1980s to address the fiscal imbalance.
However, history also offered lessons on how to tackle such crises. The SAP, although controversial and painful, was implemented to restore fiscal discipline and stabilize the economy. Nigeria’s present situation necessitated a similarly resolute response. As noted by prominent economist John Maynard Keynes, “The boom, not the slump, is the right time for austerity at the Treasury.” In Nigeria’s case, prudence in fiscal management during periods of economic growth and resource abundance was key to weathering the storm.
The report on the 2022 fiscal performance underscored the urgency of implementing structural reforms and fiscal consolidation measures. These reforms focused on enhancing revenue collection, curbing recurrent expenditure, and fostering transparency and accountability in public financial management. Equally important was the need for strategic investment in capital projects that spur economic growth. Nigeria’s experience should underscore the importance of diversifying revenue sources, particularly reducing over-reliance on oil revenue, as stressed by the report.
Furthermore, the country had to address the issue of non-essential fiscal deductions, as cited by the DMO. This would free up resources for budget implementation at all tiers of government, reducing the burden on the federal government. As Nigeria had experienced before, a well-thought-out economic reform program could pave the way for fiscal sustainability and long-term growth.
The fiscal crisis in Nigeria today is a complex issue with far-reaching implications. It threatens economic stability, hampers growth, and erodes investor confidence. The government’s excessive spending, particularly on recurrent costs and debt service, coupled with declining revenues, underscores the urgency of addressing this issue. History provides lessons on how to tackle fiscal crises, and Nigeria’s policymakers must take heed. Implementing fiscal discipline, boosting revenue collection, and prudent expenditure are vital steps in securing the nation’s economic future. As economist Paul Krugman aptly put it, “In the long run, our most serious economic problem is that we have a society in which all resources and power are concentrated in the hands of a few people. This concentration of wealth and power is far more important than either the federal budget deficit or the trade deficit.” Nigeria’s fiscal crisis is a symptom of this larger problem, and addressing it requires a multifaceted approach that prioritizes the welfare and prosperity of all its citizens.