Nigeria’s Fiscal Imbalance: Expert Calls for Sustainable Revenue To Fund Expenditure

Head of Investment Research at Meristem Securities, Praise Ihansekhien, has stressed the significant reliance of most Nigerian states on federal allocation (FAC) for revenue, rather than internal generated revenue.

This, she noted, has resulted in a substantial gap between states’ revenue and recurrent expenditure needs, leading to high debt levels.

Ihansekhien in an interview with ARISE NEWS emphasised the need for sustainable revenue to fund expenditure, particularly as Nigeria has historically prioritised recurrent expenditure over capital expenditure.

“Nigeria has not prioritised capital expenditure, it’s crucial that we explore ways to generate sustainable revenue to fund future expenditures,” she said.

She stressed that addressing the fiscal imbalance between revenue and expenditure is crucial to reducing debt service and burden.

“Nigeria has faced a significant fiscal imbalance between its revenue and expenditure base, leading to high debt service and burden.

“To rectify this, we need to explore external funding sources, referred to as the ‘rest of the world’, to fill this gap,” she added.

The expert also commented on foreign inflows, explained that investors seek visible value and attractive returns. Lagos State, with its 82.42% share of Nigeria’s capital importation in Q1 2024, has positioned itself as an attractive destination for investors.

“Foreign inflow is a value play, and the Nigeria Q1 2024 capital importation chart shows that foreign investors are attracted to visible value and attractive returns.

“Lagos has successfully positioned itself as a destination offering value, as evident from the fact that it accounted for 82.42% of Nigeria’s capital importation in Q1 2024, with the numbers speaking for themselves,” she said.

However, Ihansekhien noted that other states may have generated and attracted revenue in foreign inflows in previous quarters, potentially reducing Lagos’ share.

The high rates in money market instruments in Q1 2024 contributed significantly to the quarter’s Foreign Portfolio Investment (FPI) inflows.

Nigeria received $3.7 billion in 2023 and has already made $3.3 billion in Q1 2024, indicating a potential increase in capital importation for the year.

“The rates in money market instruments were significantly high in Q1, which supported the bulk of the Foreign Portfolio Investment (FPI) inflows for the entire quarter.

“Notably, Nigeria made $3.7 billion in 2023, and has already seen $3.3 billion in Q1 2024, indicating a strong start to the year. This trend suggests that capital importation for 2024 is likely to surpass the previous year’s total,” she said.

Ihansekhien’s analysis highlighted the need for Nigeria to address its fiscal imbalance and prioritise sustainable revenue generation to fund expenditure and reduce debt.

Boluwatife Enome

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