- Spending Flexibility: Nigeria Has Less Room to Cut Spending -Moody’s
Nigeria’s high recurrent expenditure remained an issue as it impedes the nation’s ability to consolidate its budget despite weak revenue generation.
Moody’s Investors Service on Thursday said while some African nations have room to consolidate their budgets in order to stabilise debt, Nigeria does not have that luxury because of her high cost of servicing debt and overall spending.
In the report that addressed economic situation in some African nations, Moody’s said: “Nigeria and Gabon have relatively less flexibility to cut spending; in Nigeria, we capture only spending at the federal government level, where interest makes up a relatively large share of total spending, while the relatively low degree of spending flexibility reflects past fiscal consolidation which was skewed toward discretionary spending.
“In Gabon, less flexibility to cut spending today reflects the composition of past fiscal consolidation.”
The global credit rating agency explained that spending flexibility allows nations to cut government spending quickly and significantly in order to adhere to plans and lends resiliency to fiscal strength.
David Rogovic, a senior analyst and the report’s co-author, said: “Expenditure cuts are often less complex to implement quickly than revenue-raising measures.”
“The credit risks associated with lack of spending flexibility are most pronounced where it coincides with higher debt burdens and for those whose fiscal metrics are more vulnerable to shocks.”
The report, however, noted that Rwanda and Cameroon higher than average flexibility mitigates part of the risks associated with rising government debt.
The report also pointed to 80 percent mandatory spending in Namibia, Mauritius, South Africa and Ghana, saying it would be hard to reduce spending in those nations.
“While spending flexibility does not solely drive our assessments of fiscal strength, greater flexibility raises confidence in the stability of fiscal strength through economic and financing cycles.
“The credit implications of spending structures are most relevant for sovereigns with already weak fiscal strength assessments, or those sovereigns whose fiscal metrics are more vulnerable to shocks,” the report added.
