The Federal Government of Nigeria yesterday asked the National Assembly to approve the sum of N819.5 billion as supplementary budget for the 2022 fiscal year that will end in less than ten days from now.
The new request was revealed through a letter addressed to the National Assembly which was read by the senate president, Ahmed Lawan, during a plenary session. According to available information, the FG seeks to finance the supplementary budget through borrowings from domestic creditors.
“The year 2022 has witnessed the worst flood incident in recent history which has caused massive destruction of farmlands at a point already closed to harvest season. This may compound the situation of food security and nutrition in the country. The flood has also devastated road infrastructure across the 36 states and the FCT (Federal Capital Territory) as well as bridges nationwide that are critical for the movement of goods and services.
“The water sector was equally affected by the flood and there is a need to complete some ongoing critical projects that have already achieved about 85 percentage completion. The nine critical projects proposed in the sector cut across water supply, dam projects, and irrigation projects nationwide.
“I have approved a supplementary budget of 2022 appropriation of N819.536bn, all of which are capital expenditures. The supplementary will be financed through additional domestic borrowings which will raise the budget deficit for 2022 to N8.17tn and deficit to GDP ratio to 4.43 per cent,” President Buhari stated according to the Punch.
In September 2022, the Debt Management Office (BMO) announced that Nigeria’s total debt stock stood at N42.84 trillion.
“As at September 30, 2022, Nigeria’s total public debt stock which comprises the total domestic and external debt stock of the Federal Government of Nigeria, all state governments and the Federal Capital Territory stood at N44.06 trillion. In comparison, the total public debt figure as at June 30, 2022 was N42.84 trillion,” DMO announced on its website.
It added that the domestic debt as at September 30,2022 was N26.92 trillion while the total external debt as at September 30,2022 was N17.15 trillion. According to DMO, the increase in public debt was due to new borrowings by the federal government to part-finance the deficit in the 2022 Appropriation Act.
It should be noted that the federal government’s total debt also includes the ways and means sourced from the Central Bank of Nigeria, which currently stands at N22.7 trillion. This implies that when the supplementary budget is eventually approved, Nigeria’s total public debt will rise to N67.59 trillion, according to analysis by the Nigerian Observer.
Continuous borrowings by Africa’s biggest economy has deprived it the ability to execute critical infrastructure projects. This is already telling on the debt servicing which for most parts of this year, gulped almost all the total revenue earned by Nigeria.
Meanwhile, the World Bank has projected that Nigeria’s debt to GDP ratio will reach 42 percent by 2026 as the global development finance institution does not foresee any many reforms in the country in the short to medium terms. The Bank stated this in its November 2022 publication entitled “Nigeria Public Finance Review: Fiscal Adjustment for Better and Sustainable Results.”
“With no major revenue-side reforms expected in Nigeria over the medium-term, fiscal deficits are projected to remain high as spending needs and debt servicing continue to grow. The debt stock is expected to reach over 42 percent of GDP by 2026, with debt growth forecast to slow down to 17 percent per year between 2021 and 2026.
“Although this level of debt would still be sustainable by international standards, debt servicing is expected to grow rapidly (at 22 percent per year between 2021 and 2026) with a potential to erode fiscal space and further contribute to fiscal deficits, “the World Bank said.
The World Bank warned that the sustainability of Nigeria’s debt is vulnerable to macro-fiscal shocks, of which the GDP shocks are expected to have the biggest potential impact on public and publicly guaranteed (PPG) debt to GDP ratio.
“A combined macro-fiscal shock could increase Nigeria’s gross financing needs by around 2 percentage points of GDP and debt to GDP by 10 percentage points in the medium-term (by 2026). This would push debt to 52.6 percent of GDP, a ratio that would remain sustainable but require rapid corrective measures to avoid further deterioration.”
