Nigeria spent a whooping N1.11 trillion to cover debt service obligations in the first six months of the year 2019. This is revealed in the 2020 budget circular just released by the Federal Ministry of Finance, Budget and National Planning.
According to the data extracted from the Federal Government circular, the Ministry of Finance, Budget and National Planning released a total sum of N1.11 trillion to cover debt service obligations as at 30th June 2019.
Some breakdown: According to the report, the Federal Government aggregate revenue of N6.99 trillion was projected to fund the 2019 Budget of N8.92 trillion. This implies a deficit of N1.92 trillion will be financed mainly by borrowing.
- Earlier data obtained from the Central Bank of Nigeria showed that international payment made by Nigeria in the form of debt servicing between January and June 2019 was estimated at N263.7 billion or $859 million.
- Meanwhile, it was disclosed in the circular that as at June 30th 2019, the total debt service rose to 1.11 trillion in just six months.
- More details provided in the circular show that the Federal Government actual revenue was N2.04 trillion, and this represents only 58% of the N3.49 trillion pro-rata budget.
- Essentially, it was stated that shortfall of 42% is attributable to the underperformance of both oil and non-oil revenue.
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The circular reads: “Seasonal factors, as well as the slow recovery in economic activities that drive consumption and the lingering security issues, contributed to the underperformance of the various revenue sources.”
According to the budget circular, the non-implementation of other revenue initiatives like the restructuring of JV oil assets and tighter performance management of Government-Owned Enterprises (GOEs) further explain the weak revenue performance.
2019 budget performance: The report further shows that of the total appropriation of N8.92 trillion and a prorated expenditure sum of N4.46 trillion, N3.39 trillion was spent by June 2019 (i.e. 76% performance).
“A total of N2.05 trillion has been released for non-debt recurrent expenditure, including Salaries, Pensions and Overheads, while N1.11 trillion has been released to cover debt service obligations during the period,” the report reads.
In effect, it was stated that a deficit of N1.35 trillion was incurred as at end of June 2019, which is 70% of the budgeted deficit for the full year.
Meanwhile, no capital expenditure release was made in the first half of 2019 under the 2019 Budget Provision. According to the ministry’s report, the reason for this was because the 2018 capital budget was implemented until June 2019 as stipulated in the 2018 Appropriation Act.
Critical downsides: The N1.11 trillion paid to service debt in half-year 2019 is exactly 54% of revenue made within the period. This further affirms that debt servicing takes a larger chunk of the country’s revenue.
- The rising debt profile and its attendant cost have become worrisome, and the government shows no sign of slowing down as it has already been stated that another sum of N1.7 trillion will be borrowed to finance the 2020 budget.
- While debt financing is not entirely bad, the latest disclosure implies that Nigeria’s debt challenge persists, and this may take the country’s debt profile to a new height in the coming year, while capital projects still face some major setbacks.