When economists speak of running fiscal deficits, it is typically in hope that when the government spends beyond what it earns, the excess spending may inspire economic growth by boosting aggregate demand or at least that is what the Federal Government of Nigeria anticipated.
Data obtained from budget documents between 2015 and 2020 show that Nigeria generated an estimated revenue of around N21.9 trillion but spent an estimated N40.1 trillion in hope that it will spur strong economic growth.
However, after accumulating a fiscal deficit of more than N18 trillion in 6 years, average annual economic growth between 2015 and 2019 was a meagre 1.24 percent (2020 economic growth performance is yet to be determined) compared to average annual economic growth rate of 6.4 percent.
In the 6-year period prior to 2015, that is between 2009 and 2014, the total budgeted revenue was N20.7 trillion, total budgeted expenditure was N26.7 trillion while total estimated deficit was around N6 trillion according to data obtained from the Central Bank of Nigeria.
Observing that a N6 trillion deficit between 2009 and 2015 created an economic growth of around 6.4 percent, it is worrisome that between 2015 and 2019, Nigeria posted a budget deficit of N12 trillion but delivered economic growth of just 1.24 percent.
Over the last 6 years though, Nigeria has suffered 2 economic recessions owing to Nigeria’s peculiar twin economic crisis of oil price meltdown and exchange rate devaluation.
The government though spending N40 trillion during the period was unable to spur economic growth to at least match annual population growth which is about 2.7 percent.
In 2015, Nigeria’s economy expanded by 2.6 percent before declining to -1.6 percent in 2016 in Nigeria’s first recession in a democratic era.
The economy re-entered a growth phase between 2017 and 2019, expanding by 0.8 percent in 2017, 1.9 percent in 2018 and 2.2 percent in 2020. FGN forecast for 2020 was an economic decline of around 4.3 percent.
If the economy did decline by 4.3 percent in 2020, then average annual economic growth under President Buhari is approximately 0.3 percent pointing directly to the economic hardship that has befallen Nigeria in recent years.
The Federal Government recently approved the N13.6 trillion spending plans for 2021 with an estimated fiscal deficit of N5.6 trillion and an economic growth projection of 3 percent even though IMF has a more cautious growth expectation of 1.7 percent.
The fiscal deficit is 3.93 percent of GDP which is well above the 3 percent limit based on the 2007 Fiscal Responsibility Act. The government already posted N6.1 trillion in fiscal deficit in 2020 which is 4.3 percent of GDP also above the Fiscal Responsibility Act threshold.
If the government continues to increase its deficit in this manner, it will not be too long before a debt overhang starts impeding on the already slow growth performance in the country.
The total public debt as at Q3 2020 was N32 trillion according to the Debt Management office (DMO).