NAIRAMETRICS
Theoretically, Governments can finance their spending in three ways. First, it can raise revenue through taxes, such as personal and corporate income taxes. Second, it can borrow from the public. Third, it can simply print money.
The revenue raised through the printing of money is called seigniorage, which is the difference between the cost of printing money and the value of the money when it’s in the financial system.
- Nigeria is approaching its bandwidth in all three ways. Tax collection has been dire. Nigeria has one of the lowest tax collection rates in the world at approximately 10.8 percent of gross domestic product (GDP). Muhammadu Buhari left a 77 trillion naira ($167bn) debt to local and foreign creditors.
- Already, 96 percent of the government’s revenue is being used to service debt and there have been fears that the government’s cash crunch could worsen if additional revenue is not generated.
- The third measure which is printing money is economically unpopular because inflation is at over 26.72% as a result of the central bank through the monetary phenomenon of illegal financing of the federal government’s massive deficits to the tune of N23 trillion, in ways and means lending.
- So the CBN should be heading towards mopping up excess liquidity.
Additionally, just 47% of the 2023 budget would be funded by revenue. The other part – borrowing. The makeup of the budget is also not inspiring.
1. Debt service cost of about N6 trillion represents about 31% of the Budget. This underscores the need for urgent action to address revenue underperformance and expenditure efficiency.
2. The non-debt recurrent expenditure (NDRE) of N8.27 trillion remains the largest expense in the budget (about 40%). It includes personnel cost of 4.99 trillion. That’s a problem – a quarter of the country’s budget spent on less than a million of the country’s population seems a bit horrendous especially as government workers don’t exude transparency, accountability, and efficiency.
3. Total annual revenue is estimated at N10.49 trillion ($13 billion) – Apple made more from just selling iPads ($23 billion) in 2023. Nigeria has one of the lowest government revenues in the world
4. FG’s share of oil revenue was N1.86 trillion, less than $2-4 billion depending on what exchange rate you use. But our politicians live lifestyles like we made Saudi Aramco’s $161 billion net income from oil in 2022.
5. Debt servicing and Expenditure are elevating but revenue is not elevating.
Nigeria is an oil-producing country, but many of her citizens have yet to come to terms with the cold truth that its oil proceeds cannot grow the country.
As of today, there has been only a partial recovery in oil production, to 1.57 mbpd (including condensates) in September from a low of 1.25 mbpd in September 2022, and an anticipatory moderate increase in 2024-2025, averaging 1.81 mbpd, helped by improved onshore surveillance.
However, this is still well below the 2.09 mbpd in 2019, reflecting chronic underinvestment in the sector, and likely ongoing production outages.
Overall, we have not been able to get to 2.5 million barrels per day – our supposed production capacity, but Nigeria’s population has elevated as seen in the diagram below, while oil production is going lower over the last 20 years.
So we have a sticky situation where oil is not performing to its capacity but the country’s population is growing higher.
