FG To Spend 94% Of 2022 Revenue To Service Debt, Says August & Co.

According to August & Co., a Nigerian financial research firm with a global reach, Nigeria will incur around N4.7 trillion in debt, which is approximately 94 percent of its projected revenue to service its debt this year, 2022.

The credit rating firm says the above projection is 18 percentage points and is above last year’s 76 percent debt-to-revenue ratio.

Further investigation from the report revealed that this year will be the highest in the debt-to-revenue ratio that the country has ever witnessed. The 2019 figure showed a growth rate of 29.17%, which grew to as high as 35.71% in 2021.

This information is contained in the agency’s Nigeria in 2022 report which was released to the press. In the report, it described the revenue projection as an "aggressive estimate."

Breakdown of the Projection

The federal government will borrow up to N8 trillion, or $19.14 billion, using an average CBN Interbank exchange rate of N418/USD to fund its national budget.

"This means the FGN (Federal Government of Nigeria) will need to borrow about N8 trillion in order to finance aggregate spending of N13 trillion. We estimate that the FGN will borrow about $5 billion in foreign currency (FCY) in 2022 (N2.1 trillion) and the rest will be local currency (LCY) borrowings. FCY borrowings will increase to about $44 billion and LCY borrowings to about ₦ 43 trillion. "

The report revealed that the aggregate national capital project investment for the year will be around 1.6 percent of the gross domestic product (GDP), which is a marginal increase from the same period last year. It splits the total amount – N3.1 trillion – into 2.1 trillion (FG) and N1 trillion (states).

It adds: "We estimate that the cash from all these sources will add up to about N13 trillion in 2022, compared to FGN’s planned spending of N17 trillion. FGN spending, as in prior years, will be constrained by the total amount of cash it can muster from these sources. Therefore, the FGN will meet most of her obligatory spending (interest on her loans, statutory transfers, payroll, and pensions) amounting to about N10 trillion, leaving a balance of about N3 trillion.

Assessing the external sector, the economic and financial think-tank doubts the Central Bank of Nigeria (CBN) will allow any significant floating of the domestic currency, taking into consideration the effect it could have, knowing that we are close to the general election of 2023.

"The parallel market premium of around 40 percent" would have a negative bearing on the country’s capital importation, especially the inflow of foreign direct investment.

On the impact of crude oil on the exchange rate management, the CBN believes that the increased inflow from a growing price of the product will not only create a favourable rate system but will also help curb the influence of the parallel market on the system.

"At a production rate of 1.8mbpd and an average price of US$75 per barrel, oil and gas export revenues will be around $50 billion in 2022 compared to $43 billion in 2021. Because the CBN is unlikely to change its exchange rate management strategy in 2022, a parallel market premium of around 40% on the official exchange rate will continue to exist.This means that foreign investors will be wary of bringing in new money at the official rate. Therefore, net foreign investment will not be a sizable source of dollar inflow into Nigeria in 2022. "

"Financial services businesses will struggle to meet this hurdle rate largely due to negative regulations and a higher effective tax rate. Weak performance by quoted companies and the apathy of foreign investors towards the Nigerian stock market means another lackluster year on the NGX.

"Population growth of 2.5 percent will eat up the bulk of the real GDP growth of three percent to four percent we have projected." This means that real GDP per person will still be below the ₦383,000. The real wages of employees who work for the key businesses in the real sector will continue to fall. Unemployment will continue to rise as school leavers join an economy that is weak at creating jobs. "