[OPINION] The revenue crisis and challenge of government
It has become a truth, universally acknowledged, that Nigeria currently faces an unprecedented revenue crisis. A report on the Medium-Term Expenditure Framework and Fiscal Strategy recently released by the Federal Ministry of Finance, Budget, and National Planning, revealed that during Q1 2020, the government’s debt-servicing obligations had risen to a staggering sum of N943.12 billion. Revenue during the same period stood at N950.56 billion.
From a purely technical point of view, a debt crisis arises when a nation is unable to meet up with its debt payment obligations in a situation where its debt-servicing obligations are higher than its tax revenue. To be so defined, a debt crisis must persist over time to such levels that it becomes virtually impossible for the government to solve the problem without a major intervention either through debt relief, rescheduling or even outright debt forgiveness.
At the time of independence, most of our foreign earnings were derived from agricultural products such as groundnuts, cotton, cocoa, rubber and palm produce. The government relied on these for the bulk of its foreign earnings. Interestingly, by the late sixties, Nigeria was also becoming important as an exporter of manufacturing products, including industrial machinery and vehicles. The tax base was modest but significant.
Our rentier petrodollar political economy is anchored on the state collecting rent from multinational oil companies. Nobody was interested in taxation outside the narrow confines of the oil enclave economy. Political theory establishes incontrovertibly that taxation is good for democracy. Where government relies only on oil rent, its functionaries feel no moral obligation to the populace and the latter have no locus standi to demand accountability from the rulers.
Tax reforms also helped in building up a revenue base that could mobilise more resources for the budget. Dwindling oil revenues over the past decade have also meant greater reliance on other sources of revenue, including taxation, VAT, excise duties, and internally-generated revenues among the states.
Debt-servicing on average has gulped 50% of revenues. The recent revelation that during Q1 2020, debt-servicing was 99% of total revenues was shocking but not unexpected. No doubt, COVID-19 and the ensuing lockdown have played their part. As oil prices begin to rally, we would hope that the worst is over. But that experience should be a sobering moment for our economic managers.
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