A growing debt profile subsisting alongside a currency-induced foreign exchange depletion has resulted in a shortage of revenue in Nigeria. For Africa’s largest economy, recent growth has been tepid post-Covid despite an uptick in demand for crude oil. A growing debt profile subsisting alongside a currency-induced foreign exchange depletion has resulted in a shortage of revenue in Nigeria.
Following a recession – technically defined as two consecutive declines in the GDP – that was buoyed by the lockdown imposed in 2020, the economy slid into a dire shortage of funds. The legend of a mono-cultural economy still holds sway as crude oil notoriously accounts for the majority of income – 42percent during the pandemic.
As lockdowns were relaxed around the world last December, it brought respite for the global economy. As of then, the price of Nigeria’s Bonny Light crude was $49.99 per barrel. Today, it averages $73.12 with daily production also shooting up to 1.42 million from 1.12 million barrels per day. Sadly, these gains have not translated to improved earnings for the Federal Government perhaps due to increasing cost on security fighting northern Nigerian Boko haram terrorists and bandits, a rising debt, and debt servicing profile, a large oil refining bill, and a recurrent expenditure that gulps three-quarter of the total budget.
The rise in foreign exchange earnings to $36.7 billion in the third quarter following an earlier five year low of $33.3 billion in the second quarter of 2021 was essentially due to inflows from the IMF, and Eurobond proceeds, as announced by the Governor of the Central bank of Nigeria (CBN) Godwin Emiefele at the France-Nigeria Security and Economic Summit held in Paris France in October 2021.
The oil subsidy debacle lingers at the forefront of planned policies for 2022, with subsidies set to be removed on petroleum products. The CBN Governor identified a flawed business case as the premise for the discontinuation of subsidy payments even as the importation of petroleum products now consumes close to 30 percent of outward forex expenditure.
Still, it would be self-destructive to halt the searchlight on the next optimal source of revenue. Though now, it would seem that the government has now accorded preference to taxes as a solution to current funds shortage, perhaps as businesses are bound by fiat to comply with them and inherently with respect to the recommendation given by the International Monetary Fund (IMF).
“Once economic recovery takes root, Nigeria will need to increase the value-added tax rate to at least 10 percent by 2022 and 15 percent by 2025 —the average in countries belonging to the Economic Community of West African States— to create effective fiscal space.” The International Monetary fund (IMF) Executive Board said much earlier in the year.
On the seventh day of the last month of the year 2021, President Buhari acted on this recommendation when he sent the Finance Bill to the National Assembly to make changes to taxes Nigerians pay. Zainab Ahmed, the minister of finance, had long warned Nigerians in advance to expect to pay more taxes in 2022.