Notice: Undefined index: banner_ad_width in /home/ayekooto/public_html/wp-content/plugins/quick-adsense-reloaded/includes/render-ad-functions.php on line 359
Notice: Undefined index: image_width in /home/ayekooto/public_html/wp-content/plugins/quick-adsense-reloaded/includes/render-ad-functions.php on line 359
Notice: Undefined index: banner_ad_height in /home/ayekooto/public_html/wp-content/plugins/quick-adsense-reloaded/includes/render-ad-functions.php on line 360
Notice: Undefined index: image_height in /home/ayekooto/public_html/wp-content/plugins/quick-adsense-reloaded/includes/render-ad-functions.php on line 360
Revenue allocation to federal, state and local governments has declined from a peak of N970.57bn in July 2021 to N680.783bn in May 2022, representing a 30 per cent reduction over the period.
The drop in funding for these tiers of government highlights the financial difficulties that several levels of government in Africa’s largest economy are confronting.
“It is evident that state governments won’t be able to carry out capital projects, pay salaries, and satisfy other obligations with this outlook. In a phone conversation Friday night, Covenant University professor of economics Jonathan Aremu argued that now is the moment for states to turn inward.
Nigeria receives the majority of its income from crude oil, but it has already spent N2.1 trillion in the first half of the year and may spend an additional N4 trillion by the end of the year, according to projections from the International Monetary Fund.
The Nigerian National Petroleum Corporation has found it extremely difficult to continuously send money to the government as a result of the opaque and dishonest subsidy policy.
The National Assembly has given the Federal Government permission to increase its annual allocation of N443 billion for gasoline subsidies to N4 trillion.
Low oil output and theft make the situation worse. According to the OPEC Monthly Oil Market Report, oil production decreased from 1.238 million barrels per day in March to 1.2 million barrels per day in April 2022. This is well below the baseline for oil in the 2022 budget, which is 1.88 million barrels per day.
According to the National Bureau of Statistics, Company Income Tax in Nigeria decreased from N472.52 billion in the third quarter of 2021 to N347.81 billion in the fourth quarter, representing a 26% decline during the time.
“Many states did not anticipate a swift fall in revenue. If their sources are dwindling, the revenues would also. States must examine themselves since building those projects now costs more money. Because now is absolutely not the time to spend money, they also need to stop leaks, according to Aremu.
States may stop funding large projects in the future, according to Mr. Wole Oluyemi, a senior financial analyst and Director at Bishop and Rooks in Lagos.
The amount of projects they can work on is limited. People who continue working on these projects with a high level of risk appetite will begin to owe salary because something has to give. In order to carry out their ambitions, some of them may start borrowing money in the form of bonds for their projects, according to Oleyemi.
He stated that the predicament has compelled states to exercise creativity in order to increase Internally Generated Revenue.
Nigeria can learn a lot from Sri Lanka. For the first time in its history, the nation has stopped making loan payments totaling $7 billion to international creditors.
Although there are differing opinions on what caused the crisis, some analysts believe that China’s debt trap played a role because the country handed over one of its most important ports, Hambatota, to China for 99 years to operate in order to pay its debt.
The printing of money to combat inflation, unjustified tax cuts, high food prices brought on by a decline in food production, and a prohibition on artificial fertilizers are also considered to be the main offenders.
However, these are comparable to Nigeria. With over N40 trillion in debt, severe inflation, and approaching junk status for its Eurobonds, investors are demanding high interest rates in order to compensate for the country’s perceived high risk.
Dr. Muda Yusuf, the chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), stated that investors thought Nigeria was a high-risk country and added that when bonds were thought to be risky, a risk premium had to be paid.
Nigeria has also taken out loans worth millions of dollars to build roads and railways, but the terms of these loans are unknown.
Ike Ibeabuchi, a real sector market analyst, cautioned that the details of Chinese loans should be made public even if he did not think Nigeria would approach Sri Lanka’s status.
Aremu responded, “Borrowing is not a terrible thing, but bargaining is what matters. Nobody is aware of the criteria that China set when giving money to Nigeria. It is not a negotiation that can be sustained based on what we are witnessing from other nations. You must inform everyone of the debt you are incurring on their behalf since you are borrowing for the future, according to Professor Aremu.
Oluyemi argued against this, stating, “As a person in finance, I am willing to borrow money from anyone as long as the terms and conditions are favorable to me. Why should I refuse if a bank that is not my chosen bank offers me funds to construct a home? Why not if the terms and conditions are acceptable?
Vincent Paul
Comment here