With Nigeria’s fuel subsidy payout averaging N500 billion monthly, total expenditure on subsidy could hit a record N6 trillion mark by year-end, the International Monetary Fund warned on Monday.
The multilateral lender also revealed that a macro-fiscal stress test conducted on the country showed that interest payments on debts in the country could amount to Nigeria using 100 percent of its revenue to service debts by 2026 if not closely monitored.
IMF’s Resident Representative for Nigeria, Ari Aisen, made these disclosures while presenting the latest Sub-Saharan Africa Regional Economic Outlook, in Abuja.
Aisen also revealed that Nigeria received a total of $6.8 billion in facilities from the IMF following the outbreak of the COVID-19 pandemic in 2020.
According to him, Nigeria received $3.4 billion in Special Drawing Rights and as well as a loan in the same amount.
The IMF chief expressed worry that many African countries, including Nigeria risk sliding into critical debt servicing problems unless urgent actions were explored to significantly raise revenue.
Aisen noted that over 80 percent of the federal government’s revenue was committed to debt service, a situation he described as an “existential problem”
“It is a reflection of low revenue. It is an existential issue for Nigeria. It is essential for macroeconomic stability. It is important for the provision of social service,” he said.
Further x-raying the fiscal challenges, he regretted that as an oil exporter, Nigeria was not only unable to take advantage of the current global high oil prices to build reserves, but was also confronted by low earnings due to the subsidy on petroleum products.
With N500 billion monthly fuel subsidy payouts, he noted that the country might end up with a record N6 trillion subsidy by year-end.
However, he raised optimism that the Dangote Refinery would reduce fuel importation when completed, thereby cutting down the subsidy burden.
Speaking on the economic outlook for the continent, the IMF official identified key priority areas as how to reduce debt vulnerabilities, balancing inflation and growth; and managing foreign exchange rate pressures.
Aisen stated: “Unrivalled potential for renewable energy and an abundance of minerals, a successful transition offers opportunities for diversification and job creation; ensuring the green transition is also a just transition.”
He also noted that fragile and conflict-affected African countries were at the risk of falling further behind in terms of development, especially now that the world economy was faced with unprecedentedly high energy and food prices.
The Fund, he stressed, had done a lot to help Sub-Saharan African countries, having given them the $23 billion Special Drawing Rights allocation and planning to re-channel an additional $100 billion SDR from developed countries.
According to him, Africa needed $425 billion to recover from the COVID-19 pandemic. This was in addition to between $30 and $50 billion per year for climate adaptation and $6-10 billion annually for commodity imports.
Aisen further said: “I think the biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 percent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed, and this without considering any shock is that most of the revenues of the federal government are now in fact 89 percent and it will continue if nothing is done to be taken by debt service.
“It is a reflection of the low revenue of the country. The country needs to mobilize more revenue to be able to have macroeconomic stability. It has become an existential issue for Nigeria.
“The war in Europe is hunger in Sub-Saharan Africa and Africa. So, I think we should pay very close attention to this issue.”
He added: “In Sub Saharan Africa, Russia and Ukraine are first and the fifth major sources of wheat imports to Sub-Saharan Africa.
“So clearly having this conflict is the epicenter of the wheat-producing countries being hurt, which puts as we said, a big premium on the price of wheat. And it is especially complicated in Sub-Saharan Africa where we have 57 percent of the population with moderate or severe food insecurity and this is extremely concerning for the IMF because after two years of the pandemic on top of these people already suffering, you have this extra shock affecting the price of basic food items in an already very vulnerable population is something of great concern to us.”
Furthermore, he advised Nigeria in the short term to prioritize its debt, inflation, growth, and foreign exchange management.
In his contribution, the Director-General of the Budget Office, Ben Akabueze, who disagreed with Aisen on Nigeria’s debt service/revenue figures, put debt service/revenue at 76 percent.
He admitted that even at that level, it was way far too high: “There is no doubt that the debt servicing –revenue is way beyond what we want it to be,” adding that the federal government had taken steps to significantly increase revenue.
Akabueze stressed that additional revenue was the only choice before the government, assuring that the nation would not default on its debt service obligations.
He expressed regret that vested interests had made the removal of petrol subsidy very difficult over the years.
“When you try to remove subsidy or raise tariffs, you get a summons, you see resolutions get passed, asking you not to,” he said
According to Akabueze, when the executive arm of the government prepared the 2022 budget, it was with the understanding that the petrol subsidy would be removed but that somehow, that move was frustrating.
In his remarks, the Director of Policy at the Central Bank of Nigeria, Dr. Hassan Mahmoud explained that the recent upward adjustment of the Monetary Policy Rate (MPR) was to ensure an environment in which the nation could still attract investors and to prevent capital outflows that could hurt the nation’s economy.
The United Nations Resident and Humanitarian Coordinator in Nigeria, Matthias Schmale, agreed with the food insecurity raised by the IMF representative, saying there was an urgent need to increase the social safety net for the vulnerable population.
He said: “By the way, our own analysis is that they are already 15 million people in acute need of food support in the country and that was before the Ukraine-Russia conflict and our prognosis right now is that this may rise to 19.5 million.
“Basically, all the 80 million who live below the poverty line in Nigeria are food insecure. So, the currently almost 50 million need help now. If we want to avoid serious damage to the house, and serious hunger, I mean, a few weeks or months. So there needs to be an element of social protection and direct support to these people.”
