Is Nigeria’s Economy on the brink of collapse?

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Covenant Umoru

Nigeria, often touted as the economic powerhouse of Africa, is facing a multitude of challenges that are putting its economy on the brink of collapse. One of the key issues is the over-reliance on oil exports, which account for a significant portion of Nigeria’s government revenue and foreign exchange earnings. With the recent decline in global oil prices and disruptions in the global supply chain due to the COVID-19 pandemic, Nigeria’s economy has been severely impacted. The country’s inability to diversify its economy and reduce its dependence on oil has left it vulnerable to external shocks and instability.

Another major factor contributing to the instability of Nigeria’s economy is rampant corruption and mismanagement of public funds. Despite being the largest economy in Africa, Nigeria consistently ranks poorly in terms of transparency and accountability. Corruption has not only drained the country’s resources but has also eroded public trust in the government and deterred foreign investors. Without proper governance and effective anti-corruption measures, Nigeria’s economy is unlikely to recover and may further decline, pushing it closer to the brink of collapse.

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Nigeria is also grappling with a high poverty rate and widespread unemployment, particularly among its youth population. The lack of job opportunities and social support programs exacerbates the economic challenges the country is facing. With an estimated 40% of Nigerians living in extreme poverty, social unrest and discontent are becoming more prevalent. The collapse of the economy would only worsen these socio-economic issues, potentially leading to a further breakdown of the social fabric of the nation.

Former governor of the central bank and Emir of Kano, Lamido Sanusi, has stated on numerous occasions that Nigeria is heading towards bankruptcy and that the nation’s financial stability is in jeopardy. At a recent gathering organized by the Carnegie Endowment for International Peace and Agora Policy, a think tank with offices in Abuja, he restated this opinion. “ Nigeria, the largest economy in Africa, may be in default due to rising borrowing costs and spending during the final days of President Muhammadu Buhari’s administration”.

According to the World Bank, the federal government used 96.3% of its revenues to service debt in 2022. Put another way, for every N100 that the FG made in 2022, it spent N96.3k to service debts. This means that salaries, overheads and capital had to be borrowed, which in turn will increase not just the debt stock but also the amount needed to service debt. Nigeria has a major debt problem that is rooted in its inability to generate enough revenue to pay its debt and meet other pressing needs.

Bankruptcy watch

Given the unsustainable high ratio of debt service to revenue (more than 100%), bankruptcy is a serious possibility. As at September, 2023, Nigeria’s total debt profile had hit about N87.38 trillion , representing an increase of 75.29%, or N37.53%, compared to N49.85 trillion, recorded as at March, 2023.

The debt, according to the Debt Management Office (DMO), includes the N22.71tn Ways and Means Advances of the Central Bank of Nigeria to the Federal Government. “Nigeria’s total public debt stock as at June 30, 2023, was N87.38tn ($113.42bn). It comprises the total domestic and external debts of the Federal Government of Nigeria, the thirty-six states, and the Federal Capital Territory.

President Tinubu Intervention

In order to tackle the issues arising from insufficient revenue, the President established the Presidential Committee on Fiscal Policy and Tax Reforms on August 8. Taiwo Oyedele is the committee’s head, and its goal is to attain an 18% tax-to-GDP (tax to gross domestic product) ratio in three years. To increase government revenue, they were tasked with changing Nigeria’s tax laws and fiscal policies. The committee is mandated to address three broad fiscal challenges facing the economy: fiscal governance, tax reforms, and growth facilitation.Their report will also cover tax reform, fiscal policy design and coordination, and harmonization of taxes and revenue administrations.