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Danne Institute for Research

The Promise and Peril of Public Finances in Nigeria Introduction

The start of the campaigning and electoral season in Nigeria makes an assessment of our national challenges crucial. We face immense challenges, especially in the realms of the economy and security.

Our goal at the Danne Institute for Research is to lead positive change by undertaking rigorous, relevant research and engaging with stakeholders to set a decisive agenda for the reforms necessary for social prosperity. That spirit informed our report, Financing the Public Sector in Nigeria: Issues and Prospects. Therein, we examined the history, structure and status of public sector financing in Nigeria. Our findings inform this article.

As the largest employer of labour in Nigeria, the custodian of the Nigerian State and the key provider of public goods, not least of which is security, the public sector is an obvious arena for the searchlight of knowledge to alight. We hope that illumination imbues understanding and that, in turn, motivates transformation.

The first sixty-six years of the corporate existence of Nigeria saw a steady rise in public sector finances. The sector shifted from relying on the limited customs and excise duties available in a poor, agricultural country to profits from the proceeds of a highly valuable mono-commodity: crude oil. Our findings show that annual Federal Government Revenue jumped from N2bn in 1961 to N6.5bn in 1980.

Profligacy, however, swept in. Total revenue in that period was N70.3bn while expenditure totalled N82.6bn. The results are familiar to those who lived through the First, Second, Third Republics and the era of junta rule sandwiched between them: the economy was in constant crisis mode due to the volatility of crude oil and the country wracked up high debt numbers which, eventually, merited a ‘home-grown’ structural adjustment programme.
The governments of the Fourth Republic inherited those fiscal challenges of the Nigerian public sector. The administration of President Olusegun Obasanjo is famous for two reforms that improved public sector finances management.

The Excess Crude Account (ECA) was established in 2004 to provide a savings buffer that could allow the maintenance of steady expenditure during periods of high and low oil prices. That was an attempt to overcome the experience of constant swings based on oil price fluctuation. By November 2008, the Excess Crude Account had reached an all-time high of $20bn.

Second, Dr Okonjo-Iweala led negotiations with the Paris Club, an informal group of foreign creditors coordinating solutions to the payment difficulties experienced by debtor countries. In exchange for a payment of $18bn, $30bn of Nigerian debt was written off. By 2007, the external debt had dropped to $2.1bn.

The administrations of the Fourth Republic have all carried out signal reforms meant to increase the non-oil component of Federal Government revenue, raise Internally Generated Revenue (IGR) among states and eliminate ghost workers from government payrolls. The two reforms from the first government of the Fourth Republic, however, were the foundations on which our financial house was built. And, yet, the winds blew, the waves roared and our fiscal house built on rock buckled. What happened?

Recent Challenges

The pressures of Nigerian politics have always obscured a simple fact: oil revenues can not be relied on due to their cyclical nature. It should be treated like Christmastime cake: a delicious treat, but one nobody expects to eat every day. Yet Nigerian governments have often been pressured to spend the high incomes from crude oil immediately they are earned. The vaunted ECA, for example, now stands at $35m.

Amidst a general macroeconomic downturn that saw global oil prices fall and the Nigerian economy dip into recession twice, the Muhammadu Buhari administration was pushed towards deficit financing to make up for the revenue shortfall from the ever-cyclical crude oil mainstay. The alternative would have been austerity.

The government resorted to deficit financing. Governor Godwin Obaseki of Edo State accused the federal government of printing money to fund allocations to the subnationals. External debt has ballooned. We report that in the last six years, up to publication date, external debt grew by 291.37% while local debt rose 86.31%. Between September 2020 and 2021 alone, total debt jumped by 15%, from N32.9tn to N38tn

The upshot has been soaring debt servicing costs. In 2016, debt servicing took 44.6% of Federal revenue. Recent data indicate that the ratio is now 89% of revenue. That has attracted warnings from multilateral organisations like the World Bank and International Monetary Fund (IMF) who fear we are veering towards a state of crisis.


The second and third quarters of 2020 when the Nigerian economy contracted by 6.10% and 3.62%, respectively, marked the second time in five years that country had dipped into recession. The return to growth has been weak. In the first quarter of 2022, real GDP growth was 3.11%. This weak economic performance occurs with the global economy slowing.

It is imperative that the candidates take challenges to the health of the public exchequer seriously. Certain questions that all candidates for public office should consider include the issue of a quick fix to our reigning fiscal regime. What are their plans to mitigate against further erosion of public sector revenue? Will they slash expenditure or increase taxes despite the havoc being wrought by inflation and high unemployment?

Second, what are their plans to improve foreign capital inflows to Nigeria? Recent reports indicate that foreign inflows are dwindling. The candidates’ plans to increase inflows are important given their essential role as a source of foreign exchange liquidity. Continued dependence on crude oil export income and remittance inflows would be repeating the mistakes of the past.

Third, what would it take to entrench the attitude of saving for a rainy day into the management strategy of our public sector? What plans do the candidates have to bolster the ECA and the Nigerian Sovereign Investment Authority as pools for forward-looking investments?

Fourth, will the petroleum subsidy stay or will the government relent and deregulate that sector given the rising financing costs which have even led to the government borrowing to subsidise petroleum, a liquid that creates no jobs.

Finally, given the controversy over Federal Accounts Allocation Committee (FAAC) disbursements being funded by ‘money printing’, what plans do the candidates have to bolster CBN independence and resist temptations to print their way out of a fiscal hole?

We hope this article and the report it summarises encourage robust discussion on the necessary reforms to ensure the competent and excellent management of our public sector finances. The importance of making the right choices cannot be gainsaid. The insights and contributions of our valued readership are vital to creating the Nigeria we want and need.



  1. Danne Institute for Research. ‘Financing the Public Sector in Nigeria: Issues and Prospects’. Lagos, Nigeria, June 2022.
  2. ‘Debt Servicing Doubles, Hits N896bn in Three Months – DMO Report’. Accessed 30 June 2022.
  3. ‘FG, States, LGs Share N681bn in May, ECA Now $35.377m’. Accessed 30 June 2022.
  4. ‘Naira Crisis Scares Investors as Inflows Dip – Businessday NG’. Accessed 30 June 2022.
  5. ‘Nigeria to Tap Eurobond Cash, Local Funds for Fuel Subsidy as Oil Prices Rise | Reuters’. Accessed 30 June 2022.
  6. ‘Nigeria’s GDP Records 3.11% Growth in First Quarter of 2022 | Dailytrust’. Accessed 30 June 2022.