Nigeria’s fiscal woes have taken a grim turn as the Federal Government concluded the year 2022 with a fiscal deficit amounting to N7.5 trillion, equivalent to a staggering 129% of the actual revenue collected. This alarming revelation, sourced from the 2022 budget implementation report released by the Budget Office, underscores the severe fiscal challenges the country faces in its ongoing struggle to balance its budget.
Deficit Exceeds Expectations: The fiscal deficit of N7.5 trillion surpasses the government’s budgeted deficit of N5.2 trillion by a significant margin. What’s more concerning is that this deficit represents 129% of the actual revenue collected. Such a high deficit reveals that the government’s spending far outpaces its revenue, which could have dire implications for economic stability and growth.
Declining Revenue: In 2022, the government’s actual revenue was a meager N5.8 trillion, falling short not only of the budgeted N9 trillion but also the N6.7 trillion collected in 2021. This declining revenue stream further exacerbates fiscal difficulties, making it increasingly challenging to meet financial obligations.
High Expenditure on Recurrent Costs and Debt Service: The government allocated a substantial N5 trillion to recurrent non-debt expenditure, with personal costs consuming N3.49 trillion of this total. In addition, the debt service cost reached a staggering N5.65 trillion, accounting for a concerning 97.4% of the budgeted revenue. This leaves minimal fiscal space for other vital services and development projects, especially in comparison to the N4.2 trillion or 62.8% of budgeted revenue in 2021.
Efforts to curb the growth in recurrent expenditure, particularly personnel expenditure, are deemed essential moving forward, according to the budget office. This should be accompanied by effective measures to address the ongoing security challenges, which remain a government priority.
Inadequate Capital Expenditure: While recurrent expenses and debt servicing command the lion’s share of the budget, capital expenditure lags significantly. The government managed to spend only N1.89 trillion, which is 50% lower than the targeted N3.6 trillion. This low level of capital expenditure hampers infrastructural development and long-term economic growth.
Budget-Deficit-to-GDP Ratio Exceeds Target: The budget-deficit-to-GDP ratio of 3.77% surpasses the 3.0% target set forth in the Fiscal Responsibility Act (FRA) of 2007. This suggests that the country is living beyond its means relative to the size of its economy. Addressing non-essential fiscal deductions is noted as a crucial step to free up resources for budget implementation at all tiers of government.
Financing the Deficit: The deficit was partly financed through foreign borrowing, amounting to ₦510.21 billion, and domestic borrowing, which reached ₦3,654.12 billion. While borrowing is a standard practice to cover fiscal deficits, overreliance on it may become unsustainable in the long term, as it leads to increased future debt service obligations.
Impact on Exchange Rate: Large fiscal deficits can contribute to a currency crisis by boosting the money supply, leading to inflation and devaluation of the domestic currency. This can result in higher interest rates as the government borrows more to cover the deficit, eroding investor confidence and prompting capital flight. Depletion of foreign reserves worsens the situation, potentially culminating in a balance of payments crisis.
The cycle can create a self-perpetuating loop of economic instability, making it challenging for a country to stabilize its currency. Nigeria’s ongoing currency crisis is a reflection of these factors, exacerbated by the influx of money supply that has fueled inflation without corresponding economic growth.