Nigeria’s finances worsen as foreign reserves dwindle

The Federal Government of Nigeria recorded a fiscal deficit of N3.01 trillion in the first five months of 2021, reflecting the country’s worsening finances.

Figures obtained from the Medium Term Expenditure Framework/Fiscal Strategy draft for 2022-2024 showed the country recorded aggregate revenue of N1.84 trillion but spent N4.86 trillion.

According to the document, revenue is N1.48 billion, or 44.6 percent, lower than the expected N3.32 trillion, while spending was N804.37 billion, or 14.2 percent, lower than the N5.66 trillion in the 2021 budget.

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Also the document showed Companies Income Tax (CIT) and Value Added Tax (VAT) collections were ahead of the budget targets with N290.90 billion and N123.85 billion, representing 102% and 125% respectively of the prorata targets for the period

Customs collections were N204.0 billion (86% of target ). Other revenues amounted to N762.70 billion, of which Independent revenues were N487.01 billion,” the report added.

On the expenditure N1.80 trillion was for debt service (37% of FGN expenditures); and 1.50 trillion for Personnel costs, including Pensions (31% of FGN revenues).

This implies that out of every N100 Nigeria has generated in the previous five months, N74 has been spent on personnel costs.

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Similarly, Nigeria’s foreign reserves fell by $2.3 billion in the first six months of 2021, despite an increase in oil prices, as foreign exchange pressure and subsidy negated the gains.

The decline in the external reserves is in spite of the steady increase in the price of crude oil, which accounts for about 70 per cent of the nation’s dollar earnings.

According to data obtained from the Central Bank of Nigeria (CBN) the reserves began the year 2021 with $35.65 billion and ended at $33.32 billion on June 30, 2021.

The first three months of 2021 saw a reduction of $827.3 million to $34.82 billion as of March 31, and then a drop of $1.52 billion in the second three months of 2021.

In January, the reserves grew by nearly $1 billion, starting at $35.64 billion and ending at N36.30 billion.

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The gains were thereafter eroded in February as reserves dropped by $1.1billion, falling from $36.19billion as of February 1 to $35.09billion on February 26.

The reserves lost another $178 million in March, falling from $34.99 billion at the end of March 1 to $34.82 billion at the end of March 31.

In April, however, the reserves increased by $35.8 million, rising from $34.84 billion on April 1 to $34.88 billion at the end of the month.

In May, external reserves fell again, from $34.78 billion on May 4 to $34.22 billion on May 31. This is a $557.5 million loss.

Also in the month of June, external reserves dropped by $884.5 million. The reserves stood at $34.20 billion on June 1 closing at $33.32 billion on June 30.

Meanwhile, analysts at Financial Derivatives Company Limited have projected further decline in the reserves.

According to FDC the expected downward trend is due to increased dollar sales to banks by the CBN in its bid to clear the backlog of dollar demand by Foreign Portfolio Investors (FPIs).