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Cash-strapped Nigeria trapped in low growth path – Moody’s

Nigeria’s economy is not growing fast enough to absorb its expanding population, neither is government spending making a significant dent in the lives of the majority of the country’s poor people, according to global ratings agency, Moody’s.
The government’s revenue weakness is scuttling efforts to deliver a stronger economy, one that is less dependent on oil and growing closer to 6 percent annually, Moody’s said.

Nigeria doesn’t make as much cash as it used to when oil prices were as high as $100 per barrel, neither is economic growth as robust as it used to be.

Worse still, the country has borrowed huge sums of money that have failed to boost economic growth; rather they have become a burden on public finances and limited the government’s ability to invest in critical infrastructure.

“Nigeria is just paying bills and has no cash left to invest in priority areas like education and health,” said Aurelien Mali, vice president and sovereign analyst at the Moody’s Investors service.

Mali, who spoke at Moody’s annual Nigeria summit, also said the Federal Government spent less than any other government in the world on health and education.

In 2018, Nigeria’s health spend amounted to 0.6 percent of GDP while its education spend was 1.7 percent, much less than the sub-Saharan Africa average of 4.7 percent.

Moody’s says the 5.4 percent quarter-on-quarter decline in Nigeria’s gross federally collected revenues in the first quarter of 2019 underscores the challenges the government faces in implementing the reform agenda to lower the dependence on oil.

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Under-performing revenues put the government in a precarious situation where debt is growing faster than earnings.

While the country’s debt burden has ballooned from 2 percent of GDP in 2010 to 22 percent in 2019, government revenue has been shrinking.

Revenue as a percentage of GDP has gone from 5.4 percent in 2010 to 2 percent in 2019, according to data compiled by and sourced from the Central Bank’s economic reports.

Abuja’s rising debt service to revenue which went from 14 percent in 2010 to 62 percent in 2018 tells the story of how public debt has grown faster than revenues over the last decade.

Faced with revenue challenges that resulted from the slump in oil revenue, the government has gone on a borrowing spree, having pushed its debt stock from under N6 trillion in 2010 to N25 trillion nearly a decade later.

Yet, most of that borrowing has had little impact on economic growth. GDP reports by state-funded data agency, the National Bureau of Statistics (NBS), show that the economy hasn’t expanded up to 6 percent since 2014.

When it has not contracted, the economy has expanded below 2 percent annually since 2016. That’s less than the population growth rate, meaning Nigerians have grown poorer for the last three years, a trend the International Monetary Fund (IMF) has projected to last eight years.

The IMF and Moody’s expect the economy to grow 2.3 percent in 2019. That poorly compares to the projected growth rate of other African countries from Ethiopia, tipped to grow 7 percent, to Egypt which will probably expand 5.9 percent.

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The bulk of Nigeria’s youthful population are main casualties of the struggling economy, as they idle away with no jobs to do. Unemployment rate hit a six-year high of 23 percent in 2018, according to the NBS, with underemployment taking the tally to 40 percent.

The government’s borrowing spree hasn’t significantly impacted economic growth because most of the spending has been misplaced, some critics say.

The critics, most of whom are economists, say not much is left for the government to spend on critical physical and human infrastructure when so much of the little cash earned is expended on costly subsidies and debt servicing.

To grow the economy at a rate sufficient to create jobs for the 2 million Nigerians entering the job market yearly, spending more on critical infrastructure may not even be enough if the government’s revenue doesn’t improve.

Other than tapping private capital to increase investment in infrastructure, the government has very little solutions to boosting economic growth and creating jobs.


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