With a population that has a higher number of children and elderly, Zambia is left with not enough workers. Its dependency ratio leaves it vulnerable to taking on too much future debt, regardless of any post-default restructuring solution.
Tax row and oil shock may threaten Nigeria’s ability to pay its debts
As Nigeria’s taxman tends to the herculean task of significantly boosting revenue collection in Africa's biggest economy, a noose dangles close to his neck.
In August, Babatunde Fowler, chair of the Federal Inland Revenue Service (FIRS) received an official query from Abba Kyari, the influential chief of staff to President Muhammadu Buhari.
The letter from Kyari, who has previously been described as the country’s de facto vice president in some quarters, leaked on social media. Parts of it read:
- “We observed significant variances between the budgeted collections and actual collections for the analysis explaining the reasons for the variances between budgeted and actual collections for each main tax item for each of the years 2015 to 2018.”
- “Furthermore, we observed that the actual collections for the period 2015 to 2017 were significantly worse than what was collected between 2012 and 2014. Accordingly, you are kindly to explain the reasons for the poor collections.”
The taxman responded, saying that low oil revenues and the recession between 2016 and 2017 were responsible for the declining tax revenue.
Nigeria is trying to widen its tax base to strengthen the country’s fiscal position and fund its annual budget.
Nigeria’s debt profile has skyrocketed, undershooting its revenue targets by approximately 45% a year since 2015, figures from the country’s budget office show.
- According to Bloomberg, the country is “spending more in servicing debts than funding education”.
Oil revenues continue to dip
For all intents and purposes, crude oil remains Nigeria’s largest export.
Despite being Africa’s largest oil producer, its oil revenues have gone into a tailspin, thanks to a number of factors, including its refineries performing below capacity and the gargantuan corruption in its fuel subsidies programme.
- India, which replaced the US as the largest importer of Nigeria’s sweet crude after America significantly boosted its shale oil production, seems set to turn to a cheaper source of supply — Iraq.
- Reuters reports that “Nigerian oil has suffered its slowest year of sales” in 2019.
Fowler, a known affiliate of actual Vice President Yemi Osinbajo — and apparently also an associate of All Progressives Congress (APC) national leader Bola Tinubu — was plucked from his position as head of the Lagos Internal Revenue Service (LIRS) after spearheading a tax drive that positioned the megacity andstate as the country’s most economically viable.
- Thanks in part to him, Lagos continues to post internally generated revenue (IGR) to the tune of billions of Naira monthly.
- His four-year tenure as FIRS chief ended last August, but he continues to act in a substantive capacity but it is believed that he will not retain the role.
Presidential spokesman Garba Shehu has had to categorically deny reports that Fowler is under investigation, saying the query letter, “merely raises concerns over the negative run of the tax revenue collection in recent times”.
But that has done little to assuage the public and douse the frequent rumours about Fowler’s position.
Fowler is widely seen as a major casualty of an agenda to transform Osinbajo into a mere figurehead in order to drain the comparatively better goodwill the number two citizen enjoys over Buhari. It is a political play that could come in handy should the vice president seek to succeed Buhari in the 2023 polls.
A number of petitions and open letters against Fowler have also found their way into the public domain. He has been accused of flamboyant spending and partying, as well as poor staff management.
Teetering on the brink of bankruptcy
While Fowler’s future is up for debate, Nigeria is still piling up the debt. The government is currently in talks with the World Bank for a $2.5bn loan.
A number of economists and other observers have warned that the country is at the point of bankruptcy and needs political willpower to prune its expenses.
- Outspoken former central bank governor and current Emir of Kano, Sanusi Lamido, has been one of the loudest: “The country is bankrupt and we are heading to bankruptcy,” he stressed in June.
- Lamido questioned the plethora of subsidies paid by the Federal Government, and asked why petroleum and electricity tariff subsidies were more important than the country’s infrastructure and education and health sectors.
- Muda Yusuf, chair of the Lagos Chamber of Commerce and Industry lent his voice to the debate. “Already, the Federal Government proposed to spend a total of N2.14 trillion ($5.89bn) on debt servicing in the 2019 fiscal year, which is 27 % of revenue,” he said in a recent interview.
- “So this fresh World Bank loan will further increase sporadically the amount of that of 2020 to be dedicated for servicing debts…we expect the government to cut down its debt and seek other ways of raising funds, by rigorously promoting new investments to increase revenue.”
Bottom line: Regardless of whether or not Fowler loses his job, Nigeria’s balance sheet is now under the spotlight.