Nigeria’s financial situation deteriorated in 2021 as the country’s expenditure exceeded income resulting in a budget deficit of 7.3 trillion naira instead of the 6.44 trillion naira approved in the Appropriation Act of 2021, according to a new report from Afrinvest. Additional borrowing came from domestic creditors, foreign creditors and the Central Bank of Nigeria’s Ways and Means.
The breakdown of the budget deficit showed that in 2021, the Nigerian government borrowed N3.218 trillion domestically, which exceeded the N474.30 trillion approved in the Nigerian Finance Bill by N474.30 trillion. ‘last year. The government has also borrowed 3.14 trillion naira from foreign creditors against 2.74 trillion naira approved in last year’s budget.
Additionally, the Federal Government secured N932.6 billion from the Central Bank of Nigeria (CBN) while there was no such provision in the approved 2021 budget, the report said.
Afrinvest’s report, “Deeper into the Rabbit Hole: The Nigerian Economic & Financial Market Review H1 2022 and H2 2022 Outlook”, identified areas where the Nigerian government fell short of its 2021 targets with respect to revenue and expenditure targets, resulting in a huge deficit. financing seen last year.
“As global crude oil demand and prices have recovered, Nigeria has struggled to increase production to pre-pandemic levels. As a result, production fell to 1.61 mbd in Q2:2021 (Q1-2021: 1.72mbd) and continued its downward trend – falling to its lowest level in more than 8 years (Q1-2022: 1.49mbd) even as the Russian-Ukrainian war spurred The repeated underperformance of Nigeria’s oil production has kept the oil sector in contraction since the second quarter of 2020, depriving the country of fully realizing the benefits of the recovery in the oil market,” the Afrinvest report states.
Weak naira adds 548 billion naira to Nigeria’s external debt
According to the budget assumptions of the approved 2021 budget, Nigeria planned to produce 1.86 million barrels of crude oil per day, but ended up with 1.6 million barrels per day, underperforming the budget by 14%. approved from 2021.
In the foreign exchange market, the average approved exchange rate for 2021 was N/$410.50 while the exchange rate depreciated by 1% to reach N/$414.5 by the end of the year.
The report further states that oil and gas revenues are expected to reach 2.22 trillion naira in 2021, but due to underproduction in which the country has consistently missed its quota, Nigeria only achieved 1.83 trillion naira. trillion naira, thus missing the target by 17.4%. Non-oil revenue recorded a deviation of 58.8% from the approved budget, implying that the country realized 2.45 trillion naira instead of the 5.9 trillion naira targeted in the approved 2021 budget.
With oil and non-oil revenues falling far short of the approved 2021 budget amounts, Nigeria ended 2021 generating 4.39 trillion naira in total revenues, as opposed to the 8.12 trillion naira targeted in the 2021 budget bill. , representing a 45.9% decline in total revenue generation.
The above has raised Nigeria’s debt service to revenue ratio to 96% for the full year 2021 from 38.5% approved in the budget.
“The apex bank must ensure compliance with its ways and means guidelines, which limit the amount available to the government to 5% of the previous year’s tax revenue. Finally, Nigeria’s oil production is 1.24 million barrels per day on average according to OPEC, which is well below the OPEC quota. Increasing oil production and preventing oil theft is important to improve foreign exchange inflows into the country,” said Wilsom Erumebor, an economist at the Nigerian Economic Summit Group (NESG).
Positives the country recorded in 2021 included higher growth of 3.4% from 3% in the approved 2021 budget, just as crude oil prices rose 77.4% to $70.94 per month. barrel, against 40% which was the budgetary reference.
It should be recalled that in the first four months of 2022, Zainab Ahmed, Nigeria’s Minister of Finance, Budget and National Planning, said the country recorded a budget deficit of N3.09 trillion.
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“In the second half of 2022, we are not optimistic about the ability of the CBN’s hawkish tilt to meaningfully resolve the currency crisis. Confidence in the economy’s ability to generate foreign exchange is weakened by the lag between growing foreign exchange reserves and strong oil prices. In addition, tight global funding conditions are expected to deter Eurobond sales for the remainder of 2022 (1.25 billion 7-year was raised to 8.5% per year in the first quarter of 2022), thus limiting the options for a quick solution to the illiquidity of the dollar.
“Therefore, it is unlikely that, under current circumstances, foreign exchange reserves will improve significantly in the second half of 2022, given average monthly import bills of around $4.5 billion (implying around 8 months of import cover as of June 22) and other foreign exchange obligations said there is not much optimism for the second half of 2022 as the issues of insecurity, oil theft crude and hawkish stance of central banks across the globe have a high probability of affecting Nigeria’s fiscal position by the end of the year,” Afrinvest said.