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On Nigeria’s Dire Revenue Challenge (1)
Postscript by Waziri Adio
Nigeria has a major revenue challenge. There are many, including economists, who strongly believe that Nigeria’s major economic ailment today is wasteful expenditure or galloping debts or unremitting leakages and graft. Many things can be right at the same time. Acknowledging the significance of these factors does not diminish the enormity of Nigeria’s revenue challenge. The stubborn fact is that Africa’s biggest economy and most populous country is not generating enough public revenue for its size and needs.
Different datasets from the Central Bank of Nigeria (CBN), the Federation Account Allocation Committee (FAAC), and the International Monetary Fund’s World Economic Outlook put Nigeria’s revenue to GDP for 2021 at between 6.2% and 7.2%. Nigeria’s tax to GDP is even much lower. The average revenue-to-GDP ratio in Africa is 18%, with the top spot occupied by South Sudan and Lesotho at 42.07% and 46.27% respectively.
Nigeria not only has the lowest revenue-to-GDP ratio in Africa and one of the lowest globally, Africa’s behemoth also underperforms its immediate and poorer neighbours. According to the IMF dataset, revenue as a percentage of GDP is 13.81% in Cameroon, 14.33% in Benin Republic, 16.27% in Chad, and 18.30% in Niger Republic.
From FAAC figures, the net federally collected and independent revenues for 2021 was N12. 25 trillion. This figure includes personal income tax and other states’ IGRs, which means it is more comprehensive than Federation Account revenue. For a country of about 206 million people, the total government revenue amounts to about N59, 500 per capita or about $145 at official rate. Clearly, Nigeria is not leveraging its GDP for tax purposes and is not generating enough revenue for public purposes.
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, recently put the grimness of the revenue challenge beyond question. She disclosed that in the first four months of 2021, Federal Government’s aggregate revenue amounted to N1.63 trillion, or 51% below the pro-rated amount for the period. If the revenue pattern continues, the total aggregate revenue for the year may be under N5 trillion, against a budget of N17.3 trillion, with the possibility of deficit ballooning beyond N12 trillion or about 70% of the budget. Most startlingly, debt service gulped N1.94 trillion. This not only means that FG’s aggregate revenue was not enough to cover debt service but also that debt service was 119% of revenue.
This dispiriting landmark should give everyone a reason for a long pause. But it should also rouse us to the need to begin what will be a tough and arduous task of fixing our public finance. Some will argue for a more realistic budget to start with. But even our record N17.3 trillion budget is just about $41 billion, compared to $111 billion for Egypt with a population of 102 million and $128 billion for South Africa with a population of 59 million. Per capita, Nigeria’s 2021 budget is a meagre $199, which is just about a fifth of Egypt’s and less than a tenth of South Africa’s. While we need to address inefficiencies and leakages, we actually need a much bigger budget, not less, if we want to make a real dent on development outcomes in the country.
And taking on more debt is not the way to go. We also need to fully account for the magnitude of our public debt and free CBN’s balance sheet. While some in government find comfort in Nigeria’s relatively moderate debt-to-GDP ratio, it is not a very useful metric. Public debts are not paid by GDP but from public revenue. Already, Nigeria is in a sad spot where FG’s aggregate revenue is not enough to cover debt service. This means that FG has to cover the difference between its aggregate revenue and debt service from loans. This, of course, also means that every other funded budget line will be borrowed. And the more you borrow, the bigger the quantum needed for debt service and the bigger the debt, and on and on. We can’t borrow our way out of this hole.
A few attempts and recommendations have been made, including lately and interestingly by state governors, on how to boost government’s revenue profile and address other economic ills. I intend to flesh out a few ideas on the revenue challenge in the next instalment of this article.
My intervention will revolve around cutting wastes and leakages that constrict government’s revenue in the first place, increasing oil and non-oil revenue, selling part or whole of some valuable government assets or concessioning some dormant and inefficiently managed ones, and expanding the tax base, restructuring our economy for tax, export and revenue purposes, and improving efficiency of tax collection.
It is important to state upfront that there will no quick fixes. Yes, there will be a few low-hanging, one-off fruits like sale of assets. But you can’t sell the same asset twice and you can’t build a sustainable public finance on asset sales. Some savings and blocked leakages can also increase the fiscal headspace. But most of the tasks will require some heavy-lifting and consistency.
Some of the needed interventions will require some serious sacrifice from citizens, most of whom are already between the rock and a hard place. The government has to do much more itself. It has to be ready take tough decisions and send the right signals, especially in terms telegraphing a sense of urgency and embracing greater transparency, accountability, creativity and boldness. And most importantly: it has to invest in building trust with the populace.