Deficit financed through N1.25trn domestic borrowing
There’s danger ahead, economists warn
BY VICTORIA ONU, ABUJA
Within the first half of this year, the Federal Government recorded a fiscal deficit of N3.48trillion in its operations, figures obtained from the Ministry of Finance, Budget and National Planning have revealed.
A fiscal deficit occurs when the government is unable to generate adequate revenue to meet its expenditure within a period of time.
A government experiences a fiscal deficit when it spends more money than it takes in from taxes and other revenues, excluding debt, over a particular period of time.
The negative economic impact of the coronavirus pandemic had manifested in very serious challenges for the Nigerian economy as major macroeconomic aggregates have deteriorated while the economy is now on the verge of stagflation.
Against the backdrop of significant revenue underperformance and the weakening of revenue-generating capacity induced by COVID-19 pandemic,
fiscal deficits have increased with implications for increased domestic and external borrowing as well as public debt build-up.
For instance, the fiscal deficit of N3.48trillion, which is 4.4 per cent of pro-rated Gross Domestic Product in the first half of 2021, was N1.03trillion or 42.46 per cent above the projected half-year deficit of N2.44trillion.
It was also above the N2.81trillion deficit that was recorded in the first half of 2020.
The deficit, according to documents obtained from the finance ministry, was financed through domestic borrowing of N1.25trillion, thereby reflecting a negative net financing of N2.23trillion in the period under review.
The deficit occurred despite the Federal Government’s aggressive drive, which is currently being implemented under its Strategic Revenue Growth Initiative.
The Federal Government had in 2018 said, with the introduction of the Strategic Revenue Growth Initiative, it would grow Nigeria’s revenue to Gross Domestic Product ratio from eight per cent to 15 per cent.
The Strategic Revenue Growth Initiative was launched in 2018 by the Federal Government and contained a robust set of initiatives that were cascaded down as program portfolios to revenue generating entities.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, had, during the unveiling of the initiative, admitted that the Federal Government was facing revenue challenges, noting that such reforms needed to be implemented to boost revenue.
“After a year of exploring both conventional and unconventional policy strategies, in both advanced and emerging economies, it has become clear that, though we are all advanced in this highly uncertain environment, each country still has to take policy measures that are most relevant to their social-political and economic context, and reasonable as to cost and benefit,” she said.
The Minister stressed that the plan would help in mobilising and maximising sustainable revenue sources that looked beyond oil by 2025.
Ahmed had said that the plan as well as the Finance Act 2020 would form the background to set a path to economic recovery.
She added that with improved and sustainable revenue generation, appropriate fiscal and monetary policies, the economy would recover and witness huge growth.
“The SRGI and Finance Act will aid the economic recovery process of the Nigerian economy through initiatives and strategies that will grow fiscal revenues, improve the Ease of Doing Business, counteract the impact of the oil price fluctuations and integrate fiscal monetary and trade policies,” Ahmed said.
The minister explained that the SRGI was a blueprint and mechanism for enhancing fiscal revenues, adding that the thematic areas were centered around achieving sustainability in revenue generation; identifying and enforcing new and existing revenue streams; while also achieving cohesion through people and tools.
Economists have however warned the Federal Government against the consequences of policies producing such deficits.
Managing Director of EconomicHouse, Dr. Abu Abiola, advised the Federal Government to quickly organise an economic summit to help harmonise fiscal and monetary policies with a view to ensuring that the economy was well run without such huge deficits in the future.
“There is a disconnect in the economy right now, and it is showing everywhere even in the forex market,” she said.
