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Economy & Politics
Nigeria allocates N3.12 trillion to service debt in 2021, as fiscal quagmire undermines ambitious recovery
N3.12 trillion has been budgeted to service debt in 2021, representing a 9.09% rise when compared to N2.86 trillion approved for 2020.
The Nigerian government in an ambitious economic recovery and sustainability agenda has proposed a N13.08 trillion appropriation budget for the year 2021, indicating a 23.3% from the N10.8 trillion budget approved in 2020.
Meanwhile, according to the budget breakdown, a sum of N3.12 trillion has been budgeted to service debt in 2021, representing a 9.09% rise when compared to N2.86 trillion approved for 2020.
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The Budget breakdown
According to the budget speech made by President Muhammadu Buhari, the 2021 Appropriation Bill is designed to further deliver on the goals of the Economic Sustainability Plan (ESC), with a roadmap to initiate post-corona economic recovery.
The breakdown shows that the capital expenditure as a percentage of Non-Debt Expenditure is a meagre 29%, while recurrent expenditure (salaries and overhead) as a percentage of total FGN expenditure stood at 71%.
READ: Buhari earmarks N420 billion for N-Power, GEEP and others under NSIP in 2021 budget
Recurrent expenditure – N5.65trn
Capital Expenditure – N3.85trn
Statutory transfer – N484.5bn
Debt service – N3.12trn
Total proposed budget – N13.08trn
Key parameters
Oil production – 1.86 mbpd
Oil Price – $US40p/b
Exchange rate – 379 N/$US
GDP Growth – 3.0%
Inflation – 11.95%
Nigeria to borrow N4.28 trillion to fund budget deficit
The breakdown of the 2021 appropriation budget shows that due to persisting revenue challenge in the country, the total budget deficit rose to N5.19 trillion from N4.97 trillion approved in 2020.
According to the proposed budget, the 2021 budget deficit will be financed majorly by another borrowing of N4.28 trillion from both domestic and foreign sources. Domestic borrowing is estimated at N2.18 trillion, while external debt borrowing has been put at N940.89 billion, with sinking fund to pay off maturing bonds issued to local contractors and creditors put at N220 billion.
READ: FG generates over N1.4 trillion from operating surplus
Other sources include N205.15 billion from privatization proceeds and N709.69 billion drawdowns on multilateral and bilateral loans secured for specific projects and programmes.
While the 2021 proposed budget appropriation will be largely funded by new borrowing, the attendant cost of borrowing new funds takes a sheer part of the total budget. For 2021, the Nigerian government is committed to meet debt service obligations, amounting to N3.12 trillion. This represents 40% of the total budget and an increase of N445.57 billion from N2.68 debt service in 2020.
Explore Data on the Nairametrics Research Website
An ambitious recovery?
The implementation of 2020 budget has largely been undermined by the outbreak of COVID-19 pandemic, driving the government to set a N13.08 trillion 2021 budget. Meanwhile, the proposed 2021 budget maybe an ambitious one to say the least, as key pressure points on Nigeria’s fiscal landscape persist.
A glance at the key parameters underlying the 2021 budget shows that the federal government may be overly ambitious in its drive to initiate the recovery process by 2021. For instance, the government projected the Nigerian economy to bottom out of recession and produce a GDP growth of 3.2% in 2021. Indeed, this may be overly ambitious in an economy already stretched by COVID-19 pandemic amidst a looming recession.
READ: OECD reduces global economic decline to 4.5% from earlier forecast of 6%
In addition, budget deficit continues to snowball, projected to be N5.19 trillion in 2021. This represents 3.62% of estimated GDP, well above the threshold of 3% stipulated in the Fiscal Responsibility Act (FRA), 2007. Unless there are new revenue sources for the country, given the limited scope for cost-cutting, it will not be feasible to keep budget deficits within the 3% target set in the Fiscal Responsibility Act 2007.
Lastly, revenue generation remains government’s main challenge. Despite key revenue management measures introduced in the 2021 budget, which includes deregulation of the price of petroleum products; ongoing verification exercise with IPPIS, and implementation of service-based electricity tariffs; the implementation of the 2021 budget may largely be threatened by the persisting weak global oil price.
Economy & Politics
Nigerian government spends equivalent of 83% of revenue to service debt in 2020
The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020.
The Federal Government of Nigeria achieved a debt service to revenue ratio of 83% in 2020. This is according to the information contained in the budget implementation report of the government for the year ended December 2020.
According to the data seen by Nairametrics, total revenue earned in 2020 was N3.93 trillion representing a 27% drop from the target revenues of N5.365 trillion. However, debt service for the year was a sum of N3.26 trillion or 82.9% of revenue.
Nigeria’s debt service cost of N3.26 trillion has now dwarfed the N1.7 trillion spent on capital expenditure of N1.7 trillion incurred in 2020. This is also the highest debt service paid by the Federal Government since we started tracking this data in 2009.
The total public debt (External and Domestic) balance carried by Nigeria as of September 2020 stood at N32.22 trillion ($84.57 billion). Included in the total debt is a domestic debt of about N15.8 trillion.
What this means: Nigeria’s debt to GDP ratio is estimated at about 22%, one of the lowest in the world and much below what is obtainable in most emerging markets.
- However, the challenge has always been the debt service to revenue ratio, a metric that reveals whether the government is generating enough revenues to pay down its debts as they mature.
- Since the first recession experienced in 2016, Nigeria has struggled with higher debt service to revenue ratio as revenues slid in direct correlation with the fall in oil prices.
- Nigeria’s government spent about N2.45 trillion in debt service in 2019 out of total revenue of N4.1 trillion or 59.6% debt service to revenue ratio.
- At 83%, 2020 ranks as the highest debt service to revenue ratio we have incurred. Before now it was 2017 with 61.6%.
Breakdown of what debts were serviced
The following amount was spent on debt service during the year
- To service domestic debt, the government spent N1.755 trillion in 2020 as against a budget of N1.87 trillion.
- For foreign debts, a sum of N553 billion was spent against a target budget of N805.47 billion. The drop here is likely a result of lower interest rates on foreign borrowing as well as very limited borrowing from the foreign debt market during the year.
- The government only contributed N4.58 billion into its sinking fund instead of the budgeted N272.9 billion.
- The sinking fund is required to set aside funds that will be used to pay down on other loans such as bonds when they mature in the future.
- Finally, a sum of N912.57 trillion was spent on servicing CBN’s loans, granted via its Ways and Means provisions.
- Nairametrics reported last week that a total sum of N2.8 trillion was extended by the CBN to the FG as Ways and Means.
What happens next: In 2021, the government projects a debt service of N3.1 trillion against revenue of N6.6 trillion or a debt service to revenue ratio of 46.9%.
- The government plans to spend N4.3 trillion on capital expenditure during the year.
Economy & Politics
FG receives N144 billion in dividends from NLNG in 2020
NLNG, paid the Federal Government a dividend of N188 billion in the fiscal year ended December 2020.
Nigeria Liquified Natural Gas Company, NLNG, paid the Federal Government a dividend of N144 billion in the fiscal year ended December 2020.
This is according to the information contained in the Ministry of Finance Budget implementation report for the period of January 2020 to December 2020 and presented by the Minister for Finance Dr. Zainab Ahmed.
During the year, the Federal Government budgeted a sum of N80.3 billion as its share of dividends from NLNG, however, the actual sum received as its share was N144 billion, N63.2 billion more or 79% higher than projected.
The year 2020 was a difficult year for the government as the fall in crude oil prices and the economic shutdown that was triggered by the Covid-19 Pandemic dented projections and ravaged revenues.
READ: NLNG says Train 7 project will surge production capacity to 30 million MPTA
NLNG Dividend Bliss
The dividend received from NLNG was a major bright spot in the government’s revenue performance for the year.
- During the year, the government projected revenue of N5.36 trillion but only received N3.9 trillion in revenues representing a shortfall of N1.4 trillion or 27% for the year.
- The huge dividend windfall received in 2020 is a stark contrast from 2017 when Nigeria just exited a recession triggered by falling oil prices and a sharp exchange rate devaluation.
- In that year, the Federal Government’s share of dividends from Nigeria Liquefied Natural Gas (NLNG) dropped by as much as $687 million, from $1.04 billion in 2015 to $365 million in 2016, a 65% drop.
- The N144 billion received in 2020 topped the amount received from signature bonuses only N78.2 billion and complimented the N192 billion received by VAT.
- It is the most effective form of revenue generation for the government.
READ: NLNG signs 10 year sales deal with Eni
NLNG Controversies
Back in July Nairametrics reported that the House of Representatives planned to investigate the alleged illegal withdrawal of $1.05 billion from the NLNG account by NNPC without its knowledge and appropriation.
- They had accused the NNPC of illegally tampering with the funds at the NLNG dividends account to the tune of 1.05 billion dollars thereby violating the nation’s appropriation law.
- NLNG is a company jointly owned by Nigerian owned NNPC(49%), Shell (25.6%), Total (15%), and ENI (10.4%).
- The company is located in Bonny Island and has six trains with a total capacity to process 22 million tonnes of LNG a year and as much as 5 million tonnes of natural gas liquids.
- NLNG currently accounts for about 7% of the total LNG supply in the world. Nigeria is ranked as the 4th exporter of Natural Gas in the world.
READ: NLNG signs supply agreement with Galp Trading SA
Upshots: The FG is targeting a revenue of N208 billion from NLNG as dividends in 2021. If this materializes, it will be a significant payout in dividend (in naira terms) competing with the N238.4 billion expected from VAT.
- Important to note that the recent devaluation of the naira will increase the naira value of dividends and other government revenue, as it did in 2020.
- The government also targets N6.6 trillion in revenue for the period under review.
Updated: An earlier version of this article captured the dividend as N188 billion instead of N144 billion. It has now been corrected.
Economy & Politics
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