Nigeria faces significant revenue challenges, with public expenditure declining to its lowest levels relative to GDP among peers due to low oil revenues and stagnant non-oil revenues. The country will struggle to meet its social and development needs without substantial reforms to increase non-oil tax revenues, which would require a doubling of total public expenditures. Current projections suggest continued accumulation of debt and shrinking fiscal space unless significant policy changes are implemented.

1. Nigeria after oil: revenue challenges and economic
growth
NTRN Workshop and Meeting 2018
Abuja, October 2018
Yue Man Lee, Senior Economist, World Bank

2. Nigeria’s government is very small relative to its economy
Nigeria has among the smallest government relative
to the size of the economy…
Nigeria’s total public expenditures declined from 14%
of GDP in 2012 to 10% GDP in 2016, the lowest
among regional, aspirational and structural peers
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Notes:
(1) General government consists of central, state and, government and federally allocated extra budgetary funds. The central government does budget does not fully incorporate
all MDAs revenues and spending.
(2) The sample of chosen countries consists of middle-income economies (World Bank definition); and includes 3 low-income regional comparators (Ethiopia, Uganda, and
Tanzania)
(3) There are 50 countries in the 2012 and 2016 sample
(4) Horizontal axis: GDP per capita in respective years are in constant 2010 USD, then converted into logarithmic (log) form
Source: IMF Fiscal Monitor (April 2017) for fiscal data, World Bank fiscal database data for Nigeria data, WB COFIS Database for IDN expenditure data, and World
Development Indicators for GDP per capita data

3. The low and declining public expenditure decline is disconcerting
given already low capital stock...
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Source: IMF Investment and Capital Stock Dataset, 2017; World Bank Staff Calculations.

4. … and poor social outcomes

5. Nigeria’s public expenditure levels are due to having one of the
lowest revenue-to-GDP globally
Even during the commodity boom, Nigeria had one of
the lowest (General) government revenues among its
structural, aspirational, and regional peers
After the oil shocks, Nigeria’s revenues collapsed to
5.9% of GDP in 2016, the lowest ratio among regional,
aspirational and structural peers
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Notes:
(1) General government consists of central, state and, government and federally allocated extra budgetary funds. The central government does budget does not fully incorporate
all MDAs revenues and spending.
(2) The sample of chosen countries consists of middle-income economies (World Bank definition); and includes 3 low-income regional comparators (Ethiopia, Uganda, and
Tanzania)
(3) There are 50 countries in the 2012 and 2016 sample
(4) Horizontal axis: GDP per capita in respective years are in constant 2010 USD, then converted into logarithmic (log) form
Source: IMF Fiscal Monitor (April 2017) for fiscal data, World Bank fiscal database data for Nigeria data, WB COFIS Database for IDN expenditure data, and World
Development Indicators for GDP per capita data

6. While debt remains low, it is rising and debt servicing is increasingly
crowding out spending due to low revenues
Public debt/GDP remains relatively low… Mainly contracted by FGN, and increasing
With increasing external (commercial) component for
FGN and domestic expenditure arrears for States
But increasingly costly to service due to low revenues
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7. Nigeria’s revenues are low (1): due to contracting oil revenues and
stagnating non-oil revenues…
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8. Oil Revenues: It’s not only the price – but production (and
deductions…) that matter
Oil revenues fluctuate with oil price…. …but also with production…
So the conservative budget price assumption… …is ‘negated’ by overestimated oil production….
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9. Step back: Oil sector is small…but affects the rest of economy
through FX and fiscal spillovers.
Oil has not been the key direct driver of real economy …but it’s the key export and source of forex…
…and a dominant single source of fiscal revenues…. …so that consumption and imports contract in line.
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10. Nigeria’s revenues are low (2): the non-oil revenues are stagnating
due to lack of tax policy reforms and weak tax administration
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- VAT is not growing above inflation
- Corporate tax collection is yet to see significant impact from VAIDS
- Customs revenues constraint by import-substitution policies despite devaluation
- FGN Independent revenues is a complex issue
- States IGR have been limited but are growing

11. Current trajectory: the baseline medium-term scenario assumes no significant improvement in
revenue collection, leading to declining total public spending, continuous accumulation of debt
and shrinking fiscal space for development spending.
Analyses Questions Key Findings
Future:
Baseline
Scenario
What is the baseline
medium-term fiscal
projections and the
implications for debt
sustainability and
fiscal space
• The baseline scenario with no significant tax policy reforms and government
respecting fiscal (deficit) rules further limits fiscal space for development
expenditures.
• The lack of tax policy reform leads to stagnating and then declining total
resource envelope.
• Combined with increasing interest bill, this further contracts the space for
capital and other development spending at all tiers of government.
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12. Reform scenario: where could Nigeria be heading to?
Analyses Questions Key Findings
Future:
Medium-term
fiscal
framework
and fiscal
reforms
What is a more
desirable medium-
term fiscal
framework?
What fiscal reforms
are needed?
• The government in Nigeria cannot deliver on its social and development
agenda without increasing total public spending. To come close to even
the lowest comparator countries in terms of public expenditures (as a
share of GDP), Nigeria would need to at least double its total (general
government) expenditures
• As the fiscal deficits are already close to the fiscal rule limits, the only
mechanism to enable the increase in government expenditure in a
sustainable way is through significant (non-oil) tax policy and
administration reforms to increase non-oil revenues.
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Assumptions
• Expenditure to double in 5 years
and then primary deficit stabilizes
• ..allowing for current and capex
increases
• Oil revenues face slow decline, as
in the baseline
• Non-oil revenue reforms take
place and non-oil revenues grow
by 2 p.p. GDP a year for 6 years
• …and deficits are maxed out
• As primary deficits are closed,
debt stabilizes at under 30 % GDP.