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Fiscal consolidation, national debt & petroleum subsidy… the ticking time bomb

The Edo state governor alluded to fiscal deficit funding, ways and means advances as being tantamount to printing of money (N50bn) for FAAC allocations. Nigeria’s cash in circulation is approximately N2.78trn (as at February 2021), 7.17% of M3. The controversy resulted in a denial by the Debt Management Office and the Federal Ministry of Finance of printing cash to fund government expenditure. These claims and counter claims are making us take another look at the whole issue of fiscal consolidation, the funding of the deficit and the level of national debt.

Nigeria’s national debt is currently N32.92trn or 19.23% of its GDP. This is low compared to the international average but the growth in its debt and more so its debt service burden, is fast becoming excruciating. Between 2015 and 2020, Nigeria’s external debt has doubled from $10bn to the current $33.35bn. Its domestic debt has also grown astronomically. Yet the fiscal deficit has crossed the 3% convergence criteria towards 5.3%. As if that is not bad enough, the deregulation of refined products is being delayed by 6 months. All of these maladies is forcing analysts to review their opinion of the soundness of the economy.

FDC projects March inflation to reach 17.8%

The government’s increased focus on agriculture may be constrained by the rise in insecurity especially in the food belt of the country. The incessant attacks have severely depleted food reserves. This is also occurring at a time when output is expected to decline due to seasonality (planting season). This coupled with other lingering inflation stoking factors will push headline inflation towards the 18% threshold in March, with food inflation crossing 22%. This will be a major issue for the MPC at their next meeting in May and could force them to start the tightening process. This will lead to a strengthening of the naira.

In this edition of the FDC monthly publication, the FDC Think Tank provides in-depth analysis to these and other issues and what to expect in the next month.

Enjoy your read!