Nigeria risks total economic collapse as external reserves dwindle further

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With the country spending N5.9 trillion on imports in the first quarter of the year, irrespective of the preferred exchange rate, reserves of $15 billion would barely cover four months of import, posing serious dangers to Nigeria’s economy.

Nigeria is already facing serious fiscal problems, with its rising budget deficit, debt and shrinking revenue.

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.

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 at 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.

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Further analysis of the nation’s fiscal performance showed that deficit spending shot up to N3.09 trillion in the first quarter of 2022 as pro rata spending target for the period was N5.77 trillion, while the actual spending as of April 31 was N4.72 trillion.

On the other hand, as of 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.

Meanwhile, a breakdown 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.

Financial analysts claim this would not have mattered much but for recent difficulties in different sectors of the economy, especially the export constraints that have seen the nation’s petroleum monopoly unable to add to the reserves in the last six months.

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.

A banker who spoke on the understanding that her name would not be included in this report, said the reported balance on the gross external reserves has long concealed problems.

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Not only is the gross balance on the external reserves not an accounting one (according to the CBN, the reserve is a 30-day moving average with effect November 2011), by not excluding the apex bank’s contingent liabilities, the report flatters the resources available to the central bank to defend the economy’s external position.

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.

Most of these sources have however been choked off by the direction and trajectory of the CBN’s monetary policy. 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 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.

Widespread shortages will become readily evident as shops’ shelves will become empty while the prices of the few items available will keep increasing, putting them out of the reach of most citizens. CBN spokesperson Osita Nwasinobi did not respond to calls and a message seeking comments.

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.

Culled from Premium Times

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