Nigeria’s Debt Management Office (DMO) has revealed that Nigeria has one of the lowest government revenue-to-GDP ratios in Africa. The director of the organization’s Portfolio Management Department, Mr. Dele Afolabi, disclosed this on March 29, 2023, at the Leadership and Development Policy Dialogue Series (LDPDS) in Abuja. The series was held in partnership with African Centre for Leadership, Strategy and Development (Centre LSD) with the theme: “Nigerian Debt Sustainability Threat: Issues, Implications, Lessons and Solutions for the Next Administration.” Given this situation, the agency stated that Nigeria could solve its deficit problem by being deliberate with revenue generation. One of the ways to do this is through taxes.
Despite that Nigeria has the largest Gross Domestic Product (GDP) in Africa, the Federal Government’s generated revenue when compared to the GDP is lower than that of most African countries. The expected outcome by virtue of Nigeria’s high GDP is that revenue will take a corresponding increase. Instead, while Nigeria’s GDP continues to grow, government’s revenue continues to stay low. Mr. Afolabi noted that Nigeria’s revenue did not match the high debt service burden it has. He said that increase in revenue can help pay the debt of the country. According to him, the more revenue you have, the less that you have to borrow.
The director revealed that Nigerians don’t pay the right taxes.
Apart from stating that Nigeria operates a revenue-to-GDP base lower than many other African nations, Mr. Afolabi said that Nigerians are not paying the right taxes. He claimed that Nigeria does not have the right culture of taxation and revenue for the government. Hence, the next administration’s focus should be on how to grow government revenue. Apart from people who receive salaries in the formal sector, the director said that a lot of people are either not paying tax at all or not paying tax as they should. This has caused a lot of leakages in terms of government revenue.
“If we have the highest GDP in Africa, then we should also have the highest revenue,” he said. The DMO chief also urged the Federal Government to reduce its dependence on crude oil revenues and develop other mineral resources. Summarily, FG must block leakages in its plan to grow revenues and reduce its debt burden that has been increasing exponentially in recent months. Nigeria is blessed with many other mineral resources, such as coal, gold, iron ore, and more. Nigeria is not only not exploring how to grow its revenue using these resources but also not meeting the quota set by the Organization of the Petroleum Exporting Countries (OPEC). In August 2022, Nigeria oil output dropped below a million barrels per day in a record high lowest oil production in the decade.
Nigeria to spend 60% of its total revenue on debt servicing in 2023.
Mr. Afolabi urged the government to implement stricter actions against tax defaulters. According to him, tax evasion in Western nations comes with criminal penalties. Meanwhile, Mr. Monday Osasah, Executive Director of Centre LSD, revealed that according to Nigeria’s Minister of Finance, the country is expected to spend 60 percent of its total revenue on debt servicing in 2023. Osasah said this is a grave threat to the economy. The National Bureau of Statistics (NBS) stated Nigeria’s debt stock, which includes external and domestic debt, rose from N42.84 trillion in the second quarter of 2022 to N44.06 trillion in the third quarter of the same year.
The debt figure comprised the debt stock of the Federal Government, the 36 state governments, and the Federal capital Territory (FCT). The trend of Nigeria’s debt is cause for concern especially when it is now being used for debt servicing rather than for growing and developing our infrastructure. Mr. Osasah said Nigeria’s debt service-to-revenue ratio is 83 percent of the third quarter of 2022. The ratio has been on the rise as Nigeria faced dwindling government revenue while government expenditures have increased.
Some of the challenges in generating revenue in Nigeria.
Centre LSD’s director has urged FG to commence advocacy for budgetary reforms, fiscal prudence and revenue innovation. Without that, he said, the next administration will find it difficult to rescue the country from this weakening debt sustainability trend. Between 2016 and 2022, the government failed to meet its revenue targets due to falling oil prices and rampant oil theft and vandalism. For instance, the government targeted N8.1 trillion in revenue in 2021 but could only generate N6.1 trillion. Overall, Nigeria’s public and private sector debt rose to an all-time high of N70 trillion, according to the Central Bank’s data for February 2023.