Public Debt in Nigeria

Nigeria - Public Debt

Government's proposed 2022 budget is largest ever

On 7 October, President Muhammadu Buhari presented the government’s proposed budget for 2022. The budget, when passed later this year, will be the largest ever, totaling NGN 16.4 trillion (USD 40 billion) in spending. Revenue is projected at NGN 10.1 trillion (USD 25 billion). This would leave a fiscal deficit of around NGN 6.3 trillion (USD 15 billion)—roughly 3.1% of the FocusEconomics Consensus Forecast for nominal GDP for 2022. On the expenditure side, authorities project spending to increase by 12.5% compared to the current year. The largest sum of money will be spent on recurrent, non-debt payments. This includes expenditure on goods and services such as wages and salaries, as well as subsidies and transfers. This is followed by capital expenditure, set to receive just under a third of all funds amid the government’s infrastructure push. Debt servicing is the third largest expenditure group.

On the revenue side, the government estimates revenue to rise by 24.8% compared to 2021, with over a third expected to come from the oil sector. The assumptions that underpin these projections are a targeted benchmark oil price of USD 57 per barrel, and oil production of 1.88 million barrels per day (mbpd). Meanwhile, the budget assumes an exchange rate of NGN 410.15 per USD and economic growth of 4.2%, with 13.0% inflation.

The government’s assumptions are a mixed bag. On the one hand, the oil price projection is conservative, with FocusEconomics Consensus Forecast panelists projecting an average Brent crude oil price of USD 71.4 in 2022. This suggests that revenue streams could end up higher than expected, leading to a narrower fiscal shortfall. On the other hand, targeted oil output of 1.88 mbpd would mean a significant pickup from this year’s production level. In addition, the government’s growth and exchange rate forecasts seem overly optimistic compared to our panelists’ Consensus.

Lastly, the deficit is to be financed through NGN 5 trillion in new loans, NGN 2.1 trillion in bilateral and multilateral debt, and proceeds from privatization. The country currently has a relatively benign public debt burden, but debt sustainability could become a more pressing issue going forward.

Regarding debt sustainability, analysts at the EIU added:

“We remain concerned about the authorities' continued build-up of debt. At less than a quarter of GDP as at July 2021, public debt remains within sustainability limits. However, debt servicing […] has sometimes been equal to an entire month's revenue in 2021, pointing to substantial fragility. The authorities do not appear particularly perturbed by the rising debt profile, judging from their ambitious 2022 fiscal programme. […] Although the authorities' monetary financing has long breached the statutory limits in law, there is no robust mechanism to rein it in if the government continues to rely on the Central Bank of Nigeria to finance part of the budget.”

FocusEconomics Consensus Forecast panelists expect the fiscal deficit to reach 4.7% in 2022 and 4.4% in 2023, with public debt set to rise to 35.4% and 35.8%, respectively.