The IMF predicted that it would happen in 2026 but their model is really off by years. Yes, Nigeria has entered a new chapter in its reckless economic shipwrecking: “Nigeria’s fiscal position worsened in the first four months of the year as the cost of repaying debt surpassed the government’s revenue in the first quarter of 2022.” Simply, we as a people work for servicing debts. 

The International Monetary Fund (IMF) has warned that debt servicing may gulp 100 percent of Nigeria’s revenue by 2026, if the government fails to implement adequate measures to improve revenue generation.

The IMF’s Resident Representative for Nigeria, Ari Aisen, disclosed this while presenting the Sub-Saharan Africa Regional Economic Outlook report on Monday, 30th May 2022 in Abuja.

According to him, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.

(IMF predicted a full year in 2026, this is a quarter and that means that IMF is technically correct since Nigeria can recover next quarter and have the revenue receipts exceeding debts servicing obligations.)

I do not know what to write other than to point out that Naira will experience more pressure. I had noted that N700/$ by Dec 2022 is a possibility if we do not try new ideas since whatever we are doing now is not working. This is not a political statement; this is a statement from a concerned  citizen.

Nigeria has a quagmire: crude oil price cannot go sideways – it can only move up or down. The problem for Nigeria is that when the price goes up, it makes more money in the international market but also spends more to subsidize petrol since it has to import the by-product. And when the price drops, Nigeria does not make as much money internationally, affecting many things. But since prices can only go up or down, NOT sideways, we are in a mess. Interestingly, we do not have a solution on how to fix that problem.

Nigeria’s fiscal position worsened in the first four months of the year as the cost of repaying debt surpassed the government’s revenue in the first quarter of 2022.

According to details of the 2022 fiscal performance report for January through April, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.

Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, on Thursday warned that urgent action is needed to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.

The report showed that gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39% performance.

Get your PVC – 2023 is becoming exceedingly important for the future of Nigeria. 

Tekedia has more reports on this here.

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Comment: Subsidy is not the problem. Excess spending on Subsidy is the problem. The other issue is the lack of think thank group designing operations model for the country. The executive are there to execute, judiciary to interpret law, legislation for policy. Who is designing how they along with other apparatus in the country blends in? This is where the issue lies!

My Response: “The other issue is the lack of think thank group designing operations model for the country. ” – I actually think we have many think tanks. What we do not have is DO tanks.

Comment follow: ok sir, but a think thank will control, influence and enforce things at all levels.

My response: ” but a think thank will control, influence and enforce things at all levels.” – Only in America, Europe, etc. In Nigeria, who cares when universities can be on strikes for months. The biggest think tank in a nation is the university system. If you can shut it down for months, you get the idea that no one cares….

Debt Servicing Gulped N310bn More Than Revenue Generated by Nigeria in First Four Months of 2022

Nigeria’s national grid has been collapsing with reckless abandon. Of course, we know that if that trajectory does not change,  the harmattan season may come earlier, economically. So, there are many ideas on how to fix it; one is coming from the nation’s former Vice President and PDP presidential flagbearer, Atiku Abubakar: “The IDF [infrastructure debt fund ]  will have an initial investment capacity of approximately $20 billion. In addition, I’ll cause the creation of an infrastructure development credit guarantee agency to complement the operation of the IDF by de-risking investments in infrastructure to build investor confidence in taking risks and investing capital”. 

In their words,” Dear customers, we regret to inform you of a system collapse on the national grid at precisely 11:27 a.m today July 20. We are in talks with the transmission company of Nigeria to ascertain the cause of the collapse and a possible restoration timeline. We will keep you updated on the situation”.

Also displeased with the constant national grid collapse is People Democratic Party (PDP) Presidential aspirant Atiku Abubakar who via a series of tweets on Twitter proposed a solution to put a stop to the incessant collapse of the national grid.

See what he said, “I am reliably informed that there was a total national grid collapse at precisely 12:23 pm today. This is one collapse too many. It is the 6th time this is happening in this year alone. Due to the priority that I place on the power sector upon which the successes of other sectors are hinged, I am proposing infrastructure that will involve the facilitation of a review of financial, legal, and regulatory environment to promote private investment in power among the sectors.

”I’ll promote the identification, with tax breaks, a consortium of private sector institutions to establish an infrastructure debt fund (IDF) to primarily mobilize domestic and international private resources for the financing and delivery of large infrastructure projects across all sectors of the economy.

“The IDF will have an initial investment capacity of approximately $20 billion. In addition, I’ll cause the creation of an infrastructure development credit guarantee agency to complement the operation of the IDF by de-risking investments in infrastructure to build investor confidence in taking risks and investing capital”. 

I commend Mr. Abubakar for coming up with a solution; we need just that as the campaign season picks up. This proposal is not novel; Nigeria has tried it in many forms and it has one big problem: “credit guarantee” does not scale. 

In a 2018 presentation in Washington DC, at Ronald Reagan International Trade Center (see link here),  I made a case that credit guarantees cannot help Africa. My thesis was based on this: if you want someone to invest $1 million and guarantee $1m, when that person finishes investing that $1m, he will expect you to guarantee more funds, to unlock new investments.  If you do not have more capacity to guarantee more, scaling that project will stall. That is what has happened in most parts of Africa: credit guarantees work but are also limited once the guarantor cannot expand them.

What was my proposal in Washington DC? Go back to the root cause why a guarantee was even necessary? If you remove those impediments, investors will come and if they find opportunities, they can scale that mission, not just in the small pilots for guarantees, but for every part of the nation.

My suggestion to the nation is simple: credit guarantee is not scalable since it is bounded. However, we need to address the reasons why people see opportunities in the energy sector and yet refuse to invest. Interestingly, we know the #1 reason: a court now determines how much producers of power can charge their customers, irrespective if that will bankrupt the sector.

Sure, price ceilings are necessary for products produced by utilities but what is happening in Nigeria goes beyond managing oligopolies in municipalities. What we have is simple: many Nigerians believe that power has to be free and the court has blessed that thinking, making it hard to price energy reflectively.  The result is evident: many players in the energy sector are collapsing.

Yes, someone has to fight for investors so that investing in Nigeria’s energy sector does not translate to burying cash. We need to tell the court that while it can fix the prices customers pay for DStv and Zee World, when it comes to electricity, we need to modulate.

How do you reconcile a scenario where investors see HUGE opportunities in Nigeria’s electricity sector and yet few want to invest in the sector? Focusing on credit guarantees will not help. In my opinion, we need to focus on removing the bottlenecks and whatever makes it necessary to even guarantee people to come and make money!

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Comment: I think a bigger question is where are they going to get the funds to guarantee investments made through the IDF in the first place. After all, the country is practically broke. The only possibility I see to guarantee such funds is to borrow again, and we all know how that goes in Nigeria with corruption?

My response: a great point. That is like 50% of the nation’s budget depending on the exchange rate of choice.