How huge decline in revenue force FG to borrow more for survival

By Motolani Oseni

As the federal government continues to struggle with her 54 per cent decline in revenue, and at the same time disturbed on how to settle interest payment obligations on its large public debts, the Nigerian managers had returned to the local debt capital market to borrow more for survival.

This is even as Nigeria’s foreign exchange reserves, which is monitored by the Central Bank of Nigeria (CBN), dropped to its lowest in 9 months, fallen below $38 billion, without the possibility of influx of foreign currencies inflow from export receipts.

The latest data from the Debt Management Office (DMO), has shown that the nation’s total public debt inched nearly N43 trillion, although, despite this huge figure, and the nation’s move in borrowing to pay interest on debt signals sustainability pressures, the DMO believes that Nigeria’s exposure still remains within the fiscal responsibility act dictates.

For instance, Nigeria’s total debt service in the first half of 2022 stood at N2.597 trillion, a level higher than the prorated sum of N1.978 trillion by N619.81 billion or 31.33 percent.

During the period, interest on the CBN Ways and Means overdraft printed at N714.74 billion.

However, the Budget Office said the sum of N1,333.41 billion was used for domestic debt servicing, a difference of N52.34 billion (4.09 percent) from the prorated half-year projection, while N549.70 billion was spent on external debt servicing during the period under review.

In its implementation document, Budget Office reported that total earnings underperformed expectations in the first six months. Nigeria’s gross oil revenue of N2,172.35 billion was collected in the first half of 2022.

This fell short of the N4,684.98 billion prorate budget projection for the period, according to the budget office report, a decrease of N2,512.63 billion or 53.63 percent against the 2022 half-year budget estimate.

However, the gross revenue level achieved translates to an increase of N272.56 billion or 14.35 percent above the half-year actual gross oil revenue recorded in 2021.

The gross non-oil revenue in the first half of the year printed at ₦3,236.60 billion; a decrease of ₦93.07 billion (2.80 percent) below the half-year’s estimate of N3,329.67 billion.

This results from the underperformance of some of the nonoil revenue items, the budget office said, noting that the net distributable revenue however stood at N3,277.27 billion in the first half of 2022, representing a shortfall of ₦2,091.31 billion (38.95 percent).

Budget Office said revenue shortfalls impacted FGN Budget implementation in the second quarter of 2022. Average oil production in the second quarter of 2022 however decreased to 1.43 million barrels per day (mbpd) representing a 0.17mbpd (10.63 percent) fall from the 1.60mbpd benchmark for the 2022 Budget.

“The volume of oil production in the period was also 0.06mbpd or 4.03 percent and 0.18mbpd (or11.18 percent) below 1.49mbpd and 1.61mbpd reported in the first quarter of 2022 and second quarter of 2021 respectively”, Budget Office stated in its report.

Nigeria’s oil production will continue to be weighed down by the combination of oil theft, pipeline vandalism, and ageing infrastructure, according to analysts. This is expected to limit both gross domestic product (GDP) growth and government revenue performance.

Meanwhile, the nation’s FX reserves have Lower oil production volume weakened the amount of inflows from the oil exports while hot monies have reduced strongly as foreign investors do not find the local economy interesting.

The naira rate has worsened over Nigeria’s lack of comparative productive advantage despite citizens’ untamed tastes for foreign goods and services – thus having negative effects on exchange rates across the market.

Analysts, however, think the FX reserve is strong enough to battle market speculators but the level of intervention has been weak and intermittent.

In the foreign exchange market, the naira has continued to lose weight to pressures emanating from higher demand for the United States dollar and other major currencies.

From the beginning of the year to date, the Nigerian naira has lost weight across the FX market while a higher inflation rate figure in the country continues to worsen purchasing power.

But some analysts were of the opinion that the local currency weakened due to a lack of healthy economic productive capability for export earnings.

Consequently, ahead of December implementation day for a total ban on Russian oil by the European Union (EU), Brent crude futures declined to about $95 per barrel on Monday.

The market interprets a stronger US dollar to mean there will be a reduction in the crude oil demand.

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Recently, members of the EU indicated that the economic bloc will seize to import crude oil from Russia after Moscow’s persistent assault on Ukrainian territory.

Crude traders also added that the reversal in price from their daily highs of $97 per barrel was supported by a stronger dollar and uncertainty about a China reopening, thus keeping investors on edge.

Meanwhile, the prospect of even tighter supply continued to put a floor under prices after the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) agreed to cut production by 2 million barrels per day in November.

Trading data on Monday shows that WTI crude futures settled around $88 per barrel, a decline from their daily highs of $89.9 per barrel. The European Union ban on Russian oil is set to take effect in December.