It’s worse than you know

Nigeria is spending more than it earns and it’s coming to bite us all in the ass

Nov 07, 2024

Good morning, Big Brains. Has the grid started behaving like a normal grid on your side? It takes my street a few days to get over each collapse, so I’m not even holding my breath. One more collapse and I’ll be the first NIgerain to call for the head of the minister of power.

- Margaret

Word count: ~1000
Reading time ~ 3 mins

Let’s get into today’s edition:

Nigeria is spending more money than it earns
Northern governors would rather chew stone than support Tinubu’s tax reforms

The Big Deal

Nigeria is spending more money than it earns

Nigeria has officially left the Whatsapp group chat for financially responsible countries. The details of our current financial mess are as hard as life is about to get. But we figured out the financial jargon so you won't have to.

According to the Central Bank’s recent economic report, Nigeria’s account is super red, and that’s because its fiscal deficit hit ₦4.53 trillion in the second quarter of 2024. Three months before that, the deficit was ₦3.88 trillion, so this means the financial hole is deepening—and fast.

A fiscal deficit is basically something that happens when the government starts spending more than it earns from taxes and other sources.

The CBN report also shows that while revenue for the quarter slightly increased to ₦2.3 trillion, it’s still 52% short of what the government needs to cover the gap between what it earns and what it spends. Because the government has difficulty closing this embarrassing gap, it has been borrowing more money to keep things running.

Government spending also rose to ₦6.83 trillion in the second quarter—a 28% increase from the previous quarter. Now here’s where things get confusing: almost 90% of that money is used to cover official expenses, like salaries for government officials and other government-centred expenditure costs. This leaves only 3.66% for actual projects in important areas like healthcare and education.

Why is this a big deal?

You know things are bad when the Central Bank’s Monetary Policy Committee starts raising red flags, warning that Nigeria's rinse-and-repeat debt cycle will only make things worse for its citizens.

President Tinubu keeps promising that the economy will improve soon, but it looks like that “soon” will take a while. So far, the only notable solution his administration has proposed is stopping the country’s dependence on the Central Bank’s “Ways and Means” facility (which is basically, a government reserve for emergency cash). For this plan to work, the government will only have to spend what it makes, but with the deficit growing and revenue goals missed every quarter, Nigeria might start sticking its hand in its rainy day savings.

Obviously, Tinubu wants to avoid it by all means, but at the same time, he needs to close the huge gap between what we earn and what we spend. This leaves Nigerians in a tough spot because, in his attempt to balance things out, we’ll most likely see President Tinubu’s administration propose more taxes that would make life more expensive for Nigerians in 2025. Already, there’s a bill that’s proposing that Value Added Tax (VAT) should be increased from 7.5% to 10% in 2025. There’ll likely be many more to come.

This is still a lose-lose situation for Nigerians because even if the president introduces new taxes, borrowing to balance that gap will still be necessary. Either way, Nigeria will remain in a tight spot for a while.

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Northern governors would rather chew stone than support Tinubu’s tax reforms

Speaking of taxes, president Tinubu might have a hard time passing his new set of tax reforms because Northern governors are not having it. On October 28, governors of the region’s 19 states came together and said no to the Nigeria Tax Reform Bill. This is because they believe the reforms in the bill, especially the hike in VAT, won’t benefit the North or other smaller regions.

Even though the president is still moving ahead with his plans, these northern governors are not giving up until the proposal is cancelled. Senator Ali Ndume even went as far as saying that these reforms are as good as dead unless President Tinubu withdraws the reform proposal.

Why is Ndume changing it for Tinubu?

There’s a time for everything, and Ndume thinks 2024 isn’t the right year for the President to introduce new taxes. The senator is trying to figure out why Tinubu is pushing for tax reforms when Nigerians can barely afford to eat, and the math still isn’t adding up for him. But it’s not personal for Ndume. In fact, he says he’ll be happy to get off Tinubu’s back whenever Nigerians agree to these tax changes.

Even though Ndume has a problem with the bill’s reforms as a whole, his main beef is with the proposed VAT increase, and that’s because “Nigerians can’t afford it”. Ndume hates it so much that he’s campaigning against the tax bills in the Senate, and it looks like he’s gaining support.

The National Economic Council(NEC) has also backed the call for the reforms to be paused for better consultation. But President Tinubu hasn’t changed his mind. He’s brushed off these recommendations, saying they’re just part of the normal legislative process and that everyone will have a chance to give their input during public hearings.

What’s the solution?

As we’ve already established, desperate times call for desperate measures, and that’s what the President is doing with the tax reforms—he is trying to close the gap between what Nigeria spends and what it actually earns, but he wants to do this at the expense of Nigerians

In a study released in October, Oxfam, an NGO focused on tackling poverty and inequality in Nigeria, proposed a way to help the government meet this goal without suffocating poor Nigerians even more (oh and in case you didn’t know, wealthy Nigerians have been dodging taxes. Out of 130,000 high-income Nigerians, only 40 are recognised as regular taxpayers)

Oxfam’s solution is simple: Instead of burdening everyone, Tinubu should place new taxes on the rich and allow the poor to breathe. The government already has a plan to raise the personal income tax for wealthy Nigerians to 25%, but the NGO suggests increasing it. Doing this could boost Nigeria’s revenue and hopefully get us to a point where taking on more debt isn’t the only option.

This Week’s Big Question

“If you could be guaranteed success at just one thing in life, what would you choose?”

Ngozi’s response - “My art. Nobody has really tensioned Picasso in this generation”

You can also share your response here, and if it’s as interesting as Ngozi’s, we’ll feature it in the next edition.

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