Nigeria Nears Economic Collapse; External Reserve Down to $15b Contrary to CBN’s $36b Claim
With Nigeria spending N5.9 trillion on imports in the first quarter, irrespective of the preferred exchange rate, reserves of $15 billion would barely cover four months of imports.
As Nigeria prepares for general elections next year that promise to be one of the most keenly contested in its history, evidence is emerging that the economy faces a double whammy: an empty treasury and rapid decline.
Government officials and business leaders who know about the situation say there have been concerns in Abuja and Lagos after an elected official drew the attention of the Central Bank of Nigeria governor, Godwin Emefiele, to the fact that Nigeria’s external reserves amount to only $15 billion, well below the $36 billion balance on the gross external reserves claimed by the bank.
The country’s apex bank claims that the NNPC’s inability to remit oil sales receipts to the CBN, despite elevated crude oil prices, is seen as one reason why the naira has nose-dived recently in the parallel market.
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The NNPC Saga
The NNPC’s transformation into a public limited liability company further compounds the problem. By not being able to remit export earnings directly into the federation coffers, it would mean that the apex bank will look to other sources of foreign exchange inflows.
All these mean that if the external reserves are depleted within four months at the current rate, the country will no longer be able to pay for imports of food, medicines and materials and spare parts required by industries, an economic crisis similar to what Sri Lanka is experiencing.
While the continued export of crude oil by the NNPC may enable the continued import of refined fuel, experts do not expect this to stem the economic collapse caused by the end of the import of consumer and capital goods.
According to details of the 2022 fiscal performance report for January through April, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.
Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, warned that urgent action is needed to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.
The report showed that gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as of April 30, only N1.23 trillion was realised, representing a mere 39% performance.
Despite higher oil prices, the report showed that oil revenue underperformed due to significant oil production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost due to higher landing costs of imported products.
In April 2022, the nation’s retained revenue was only N1.63 trillion, 49% of the pro-rata target of N3.32 trillion, putting the deficit between actual spending and revenues at N3.09 trillion. In effect, the government borrowed to cover the deficit.
Moreover, a run-down of the government’s actual spending within the period showed that N1.94 trillion was for debt service, N1.26 trillion for personnel costs, including pensions, while a meagre N773.63 billion was spent on capital expenditure.
Preferred Solution
The preferred solution includes FG implementing measures to aid fiscal stability: cutting federal expenditure by N8 trillion in the short term, immediate action to restore fiscal discipline, cutting the cost of governance across the three tiers of government, abandoning the fixed exchange rate policy, and limiting the CBN to its core monetary policy mandate.
Explaining the level of brokenness, until recently, the NNPC usually remits $3 billion monthly from crude oil sales to the nation’s reserves. But it has not remitted up to $200 million for up to a year now.
“The National Nigerian Petroleum Company Limited (NNPC) no longer remits money to FAAC. So, the situation calls for patriotism from all Nigerians. The lack of money to fund capital projects would have implications on the capacity to create jobs. If jobs are not created, poverty will increase in the country.”
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