Government Deficit: What Recovery?

The Federal Government currently cannot meet interest payments and wages from the amount of money it earns.

This puts the “recovery” we are supposed to be experiencing in significant danger.

The Federal Government and the Central Bank of Nigeria (CBN) has been trying to spend its way out of recovery.

This has been largely unsuccessful as the economy has not significantly improved and there still isn’t any discernible form of diversification or significantly higher spend on infrastructure.

The much lauded recovery is made up of only a small lift in the value of the Naira resulting from the CBN pumping billions of USD into the market.

This has allowed banks to raise their international spending limits on cards by a paltry amount and the rate of inflation to rise at a slightly lower rate (not dip as widely reported, just increase slightly less rapidly than it had been).

All of these small elements do not constitute a recovery.

It remains true that the only current hope for a Nigerian economic recovery is a dramatic rise in the Oil prices, which looks increasingly unlikely.

The Financial Times reports today on the Nigerian Government spending.

The article is well written and describes, through an interview with a RenCap executive, the dire position of the Nigerian Government.

This simple description is that for every N100 of tax revenue gathered, it costs N90 in wages and N67 in debt interest payments.

This is a staggering fact.

With this position, there will be no more lending to Nigeria (except from the Chinese to put us into perpetual serfdom) as no lender will take the huge risk of never getting repaid.

The IMF and other international bodies are steering well clear.

The only ones buying the Federal Government debt are those that are inexperienced investors or those looking at simplistic metrics like debt as a % of GDP.

On this basis Nigeria has a very low debt ratio and appears a very good candidate for lending.

However, this ignores that most of Nigerian GDP is in the informal economy and the government does not gather any revenue from it.

So, it is unlikely that there will be any more lending from reputable sources.

How will the government continue to spend?

More worryingly, once it can no longer borrow, what will happen to the Naira and the non-diversified economy?

The answer is not a good one for us Nigerian citizens.

Be the first to comment

Leave a Reply

Your email address will not be published.


*