As Nigeria Spends Beyond its Means

Muhammadu Buhari

With Nigeria’s obligatory expenditure still more than 100 per cent of total revenue, the ability of the government to drive economic growth through infrastructure development has been stifled. Bamidele Famoofo examines the long-term implication of that on the economy

Global Environment

With rapid technological innovations which has shrunk the world into a global village, allowing small low-cost producers to take on big brands situated a world away, new products become obsolete very quickly while the “New Economy” poses a big challenge to established business models. Besides technology, population growth is another major challenge that world economies are expected tackle. Statistics has shown that world population increased from five (5) billion people in 1986 to seven (7) billion in 2011. It is expected to further grow to hit the eight (8) billion mark by 2024, with the resultant effect being prevailing poverty and inequality.

Insecurity across the globe has dealt a huge blow on economies with terrorism heavily impacting local economies and the world at large. As the world economy struggles to recover from the 2008 crises, the oil market crash of 2014/2015 foreshadows various scenarios for various economies and industries.


Africa’s most populous nation with nearly 190million people remains Africa’s largest economy despite recent economic contraction, following rebased gross domestic product (GDP) figures in 2013.  The economy, according to analysts, remains viable based on long-run projections.

Despite efforts by government to diversify revenue sources, the country still depends heavily on crude oil exports, which has resulted in severe economic challenges with the current global oil market shocks, terrorism threats, and attacks on key economic interests.

Political Environment

As expected, macro-reforms is taking a back seat as politics takes the centre stage, with politicians jostling for elective positions in 2019.  Investors are already groping and seeking hand-holding through the dark hours of 2018. According to experts, political risks are expected to spike in 2018 leading to greater uncertainty around the political environment. Also, as correctly predicted by Agusto Consulting in a presentation at a seminar for business journalists organised by Finance Correspondents Association of Nigeria (FICAN) recently in Lagos, political risks will be further heightened in the second half of 2018. In the ensuing s5cenario, economic performance indices have resumed a downward trend as headline inflation reversed its deceleration in the month of August by nine  basis points to 11.23 per cent year on year, as the impact of base effect induced decline eventually ground to a halt.

“Pointedly, the asymptotic rate of disinflation eventually flattened as month-on-month headline inflation print of 1.04 per cent (July 18: 1.13per cent m/m) finally reflected in the year-on-year number. Again, the culprit was the food basket which printed faster by +2bps to 1.42per cent even as core inflation pulled back for the period (-3bps to 0.78per cent m/m),” Cordros Capital stated in its analysis of inflationary trend..


Nigeria’s revenue from external sources, which mainly are from oil exports, workers’ remittances and non-oil exports has witnessed a downturn in the last five years. Though external revenue returned to growth path in 2017, it’s still far below the figure recorded in 2014. According to data supplied by the Central Bank of Nigeria (CBN), the revenue made by Nigeria in 2014 stood at USD105billion, but declined sharply by -39 percent to USD64billion in 2015. The country’s income from trade from the rest of the world further dropped by -19 per cent to USD52billion in 2016, owing to shock in the international oil market and unrest and pipeline vandalism in the oil- rich Niger-Delta region in Nigeria. But the trend has been reversed since 2007 as oil price in the international market has commenced an upward swing and as world economies begin to recover. In 2007, therefore, revenue from external sources jumped by 17 per cent from USD52billion in 2016 to USD61billion. External revenue growth has been estimated to stand at USD71billion in 2018, representing 16.4 per cent growth. Breakdown of the components of external revenue in five years showed that oil has remained the biggest source of revenue for the nation despite efforts by government to diversify its source of revenue. Income from oil represented 73 percent of total external revenue in 2014, while non-oil revenue accounted for only 5.7 per cent while workers’ remittances contributed about 21 per cent to the revenue basket. Oil revenue is expected to account for 62 per cent of external revenue in 2018 while non-oil and remittances will contribute 9.9 per cent and 28 per cent respectively. 


Money spent on importation of goods, services and factor payments in the last five years has sustainably exceeded revenue generated from external sources, leaving Nigeria’s trade position permanently in deficit. Figures of trade between Nigeria and its trade partners since 2014 till date showed that the country spend more than it earns, which has exposed it to borrowing from both external and local sources to stay afloat. According to the CBN, Nigeria’s spending on importation of goods, services and factor payments in 2014 amounted to USD108billion compared to inflows of USD105billion in the same period, leaving a gap of USD3billion. The gap widened in 2015 as outflows exceeded inflows by USD22billion as revenue dropped to USD64billion due to oil price crash, but outflows rising to USD86billion. The gap however contracted sharply in 2016 when the difference between inflows and outflows reduced to USD5billion, though still in the deficit threshold. In 2015, outflows stood at USD57billion compared to inflows of USD52billion. In 2017, outflows increased to USD67billion from USD57billion in the preceding year while inflows were only USD61billion. Agusto believes the trade deficit situation will not change in 2018 with its outflows forecast of USD73billion as against inflows of USD71billion. Top on Nigeria’s outflow chart is goods importation that claims more than 50 percent of external revenue in most of the years. For instance, importation of goods gulped over 57 percent of external revenue in 2014 with USD62billion spent for that purpose. Spending on importation of goods stood at USD52billion in 2015, representing 60.5 per cent of total outflows. It is expected that importation of goods will gulp about 62 per cent of external revenue in 2018 with a USD 45billion to be spent from USD73billion forecast income.


Nigeria has increased its debt (both local and foreign) in the last five years. Local debt has increased from N7.1trillion in 2013 to N13.0trillion in 2017. The same applies to foreign currency debts which also have grown from USD10billion in 2014 to USD16billion in 2017. Agusto Consulting has forecasted an increase to USD18billion in 2018.The status of the country’s debts (local and foreign) as a percentage of revenue paints a gloomy picture for the biggest economy in Africa. For instance, local debt compared to revenue has been on the rise in the last five years. The figure in 2014 for local debt in comparison with revenue  stood at 214 per cent, and it is expected to rise to 348per cent in 2018 according to Agusto Consulting. The same trend applies to foreign debt, which is expected to increase from 262 per cent in 2014 to 476 per cent in 2018 when placed side by side with revenue.

Revenue Vs Expenditure

In the last five years (2013-2017), according to figures from the Federal Ministry of Finance (FMF), made available by Agusto Consulting, the federal government has not been able to live within its means as expenditure has consistently outweighed income. 

Total expenditure in the reviewed five years period stood at N26.2trillion compared to N16.6trillion accrued as revenue in the same period. Spending increased significantly in 2016 and 2017(e) with expenditure doubling revenue. Nigeria’s total expenditure rose to N5.2trillion as against a revenue of N2.6trillion in 2016 and that increased further to N6.5trillion compared to N3.2trillion expected revenue in 2017.  

Infrastructure Deficit

The ordinary Nigerians appear to be at the receiving end of government’s inability to plan within its means. According to experts, obligatory spending of the FGN is still more than 100 per cent of revenues and therefore, there is no free cash flow for investment in infrastructure.  “Every kobo of infrastructure spending is financed by debt constrains, ability to fully fund budgeted amounts as debt as per cent of revenue is significantly higher than the median of 200 per cent, for countries in Middle East & Africa,” Agusto disclosed.


Mr. William Jefferson Clinton, the 42nd President of the United States (1993-2001) suggested what sub-Saharan economies (Nigeria being a leading figure) needed to do to be out of its economic woes.

He said, “We need a government – humble enough not to try to solve all our problems for us, but strong enough to give us the tools to solve them for ourselves; a government that is smaller, lives within its means, and does more with less.”

Clinton was able to revamp the US economy, ran an efficient government, with budget surpluses for the last three years of his presidency. He left office with the highest end-of-office approval rating of any U.S. president since World War II.