Nigeria Borrows More Money to Pay Bills

Nigeria remains in a tight spot as low oil prices force officials to burn through borrowing reserves to pay salaries.

Nigeria derives 80 percent of its income from oil revenue, but it has seen a 50 percent decline in oil income. Further, the Nigerian naira has lowered in value despite efforts from the country’s central bank to support the currency with billions of U.S. dollars.

Nigeria established a borrowing allowance of 882 billion naira, but borrowed 473 billion naira to meet overhead and salary payments. The budget leaves little room for such expenditures as infrastructure repair, which is crucial on the heels of Islamist uprisings in the north. Despite the setbacks, Minister Ngozi Okonjo-Iweala stated that Nigeria’s economy is still set to grow 4.8 percent in 2015, and food prices and inflation remain stable. However, Nigeria is devoting excess funds that could have gone to infrastructure and job creation. Infrastructure funding slowed down in 2014, forcing construction companies with government contracts to lay off workers in the thousands.

President-elect Muhammadu Buhari campaigned on a promise of economic reform and infrastructure development, but the economy he will inherit on May 29 leaves him with little options. Buhari, a former military general, pledged to strengthen the economy and protect Nigerian citizens from the threat of Islamist terrorist organization Boko Haram. However, Nigeria’s expensive election season, considered the most expensive in the nation’s history, is another reason why the nation is struggling to meet its budgetary needs, and no one truly knows how much money went to the bribing of citizens for votes. Corruption is another factor that has drained the country’s finances, but Buhari pledged his reform measures would mitigate waste, fraud and abuse. He also plans to ensure that the distribution of oil revenue happens in an equitable fashion, as opposed to an elite few benefiting from the oil riches.

Oil is a key reason why Nigeria has been a successful market in Africa, but the country needs a more balanced economy that does not rely on oil as a sole source of revenue. Nigeria is a vital producer within OPEC, but the energy industry is changing as more non-OPEC countries contribute to the oil market. North American oil production in particular provides stiff competition against Nigerian production, and nations such as Canada have lowered demand for imports. Further, fellow OPEC member Saudi Arabia flooded the market with excess oil in recent months, much to the detriment of other OPEC nations that rely on high prices to remain profitable. Nigeria also faces competition from fellow emerging markets in Africa, such as Rwanda, a more diversified economy where infrastructure and foreign investment has increased.