Respite unlikely and it is a downside risk of investing in Nigeria, says report
By Jeph Ajobaju, Chief Copy Editor
A total N3.88 trillion is ring-fenced for debt servicing in the 2022 federal budget, just 29 per cent shy of the N5.46 trillion for capital expenditure. Meaning there is not likely to be respite from the pressure of servicing loans this year.
And a report by the Centre for the Promotion of Private Enterprises (CPPE) amplifies that by saying pressure from debt servicing is expected to persist beyond 2022.
The CPPE Economic Review for 2021 and Agenda for 2022 report signed by Chief Executive Officer Muda Yusuf warned that servicing debt with a huge of sum from the budget is a significant downside risk of investing in Nigeria.
The group also implored Finance Minister Zainab Ahmed to review the recent amendments to the Tax Appeal Tribunal rules to make them fair.
Debt servicing cost Nigeria N977.03 billion in half year ended June 2021 (H1 2021), an 8.75 per cent rise year-on-year against N898.39 billion in H1 2020, according to the latest report of the Central Bank of Nigeria (CBN).
Domestic debt grew compared with H1 2020 and so hiked the cost of debt service to 8.7 per cent on the back of loans taken by Abuja to bridge revenue shortfall.
Nigeria spent N1.8 trillion on debt servicing in the first five months of last year, 98 per cent of revenue, as total loans rose to $87.24 billion in Q1 2021 from $86.39 billion in Q4 2020.
Under Muhammadu Buhari, Nigeria’s debt jumped by N20.8 trillion to N32.92 trillion between June 2015 and December 2020, and to N33.11 trillion in Q1 2021, all figures released by the Debt Management Office (DMO).
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Risk of higher fiscal deficit
The CPPE said an unpredictable revenue outlook elevates the risk of a higher fiscal deficit than projected, insisting that debt service pressures would continue to be felt from this year into the nearest future, as reported by Nairametrics.
“The pressure of debt service on government finances will persist in 2022 and beyond. Total public debt as of 30th September 2021 was N38 trillion or $92.6 billion, according to the Debt Management Office.
“The 2022 budget provided for the sum of N3.88 trillion as debt service. This is a substantial amount when compared with the capital budget provision of N5.46 trillion.”
Unfair Tax Appeal Tribunal rules
The report reiterated that “debt service payment is typically the first-line charge in budget releases. The ambitious budget size of N17.1 trillion and the unpredictable revenue outlook elevate the risk of a higher fiscal deficit than projected.
“This has implications for macroeconomic outcomes of high fiscal deficits, a new round of monetisation of the deficit, pressures on the exchange rate and the general price level.
“The CPPE would like to appeal to the finance minister to review the recent provisions to Tax Appeal Tribunal rules compelling those who have tax disputes to pay 50 per cent of the amount in dispute before their appeal can be heard.
“We submit that this is contrary to the principle of natural justice, it constitutes an obstruction to a fair hearing. We, therefore, call on the finance minister to review this policy urgently.
“Besides, the rule is in conflict with the FIRS Establishment Act that set up the tribunal. We, therefore, request that this rule be expunged from the proceedings of the tax appeal tribunals in the interest of fair hearing.”
