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By Merit Ibe
The Organised Private Sector (OPS) has faulted President Muhammadu Buhari’s borrowing plan, which it says is likely to increase the country’s debt profile to N70 trillion by end of 2023, if caution is not taken. President Buhari presented the 2023 Appropriation Bill, last weekend christened: ‘Budget of Fiscal consolidation and Transition’, where he reeled out the achievements of his administration and projections for the coming year.
In its analysis, the OPS explained that with a budget of N20.51 trillion and a revenue projection of N9.73 trillion, which implies a deficit of N10.78 trillion, there is nothing in the current budget that gives assurance to businesses that better days lay ahead.
The sector noted that in all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years.
Reacting on the budget, the Lagos Chamber of Commerce and Industry( LCCI), said that everything is wrong with the plan to issue N10.57 trillion (N8.8 trillion in new commercial loans and N1.77 trillion drawdown on bilateral and multilateral loans) new loans to finance the deficit at a time that the country was already placed on the watch list of some foreign bondholders.
Director General of LCCI, Dr. Chinyere Almona, noted that it is the exclusive use of debt to finance deficits that got the country into the situation where it cannot keep the revenue it is earning today, as the country uses the bulk of its revenue to settle interest payments.
“In the 2022 year-to-April, the interest payments were more than the revenue and it is most unlikely that the revenue will be more than interest payments in the full-year 2022 or even in 2023.”
Almona expressed relief that it was comforting that the 2023 budget was still at the proposal stage. “It behooves all well-meaning stakeholders to make constructive inputs to the presidency and the National Assembly now.
Almona proffered a more efficient alternatives to new borrowings, which include to issue equity to finance the deficit instead of using deb; break from the path in which the Federal Government only approaches the debt markets at home and abroad and never approaches the equity market at home or abroad.
She said Nigeria should henceforth use equity financing as an exclusive way of funding budget deficits.
“If we embrace equity financing, we do not have to make huge interest payments and we can use some of the proceeds of our equity issuance to pay some down debt, to make the fiscal situation more sustainable and rekindle much-needed confidence in our economic and fiscal resilience.
She noted that the country’s approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that expose our fiscal vulnerably.
The Chief Executive Officer(CEO), Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the budget has amplified a troubling fiscal outlook for Nigeria economy.
Muda disclosed that the Central Bank of Nigeria(CBN) may likely finance the coming year’s fiscal deficit given the country’s dwindling revenue performance trajectory.
Yusuf revealed that Nigeria’s debt profile may hit N70trillion by end of 2023 if caution is not taken.
He opined that the government should focus on returns on investment from its assets especially within the maritime, oil and gas enterprises and made a case for drastic budget reforms whereby budgetary allocation must reflect urgent national economic priorities, adding that there are also concerns about value for money and other forms of fiscal leakages.
“With additional new borrowing of #8.8 trillion, the debt profile will be inching close to 50 trillion naira by May next year. If we take into account the borrowing from the CBN (ways and means), which is currently about N20 trillion, we will have a total debt of N70 trillion by the end of 2023. This should be a cause for concern.
On the forward, the CPPE boss suggested that government owned enterprises managing huge economic assets need to justify the value of assets at their disposal.
“Returns on investment on those assets have been consistently sub optimal for many years.
“Lapses in the petroleum upstream ecosystem need to be urgently addressed.
The foreign exchange policy regime is adversely impacting the business environment and needs to be urgently addressed. Weak private sector performance would naturally affect non oil tax revenues.”
He said the incoming government would need to make tough policy choices to reset Nigeria’s economy.
For his part, Chairman, Apapa branch of the Manufacturers Association of Nigeria (MAN), Frank Onyebu, lamented the high level of deficit and a worrisome high debt to revenue ratio of the budget.
“The 2023 budget is much like the previous budgets of this administration – very ambitious in terms of the budget size. Unfortunately, like the previous budgets, it has a very high level of deficit and a worrisome high debt to revenue ratio. This is obviously unsustainable especially because of the fact that we are not expanding our revenue base. Debt servicing will almost certainly take up a huge chunk of the budget.
“It’s obviously the last budget for this current government. So much debt has been accumulated over the past couple of years that one wonders how the incoming government is going to cope.
“So what can this government or any incoming government do? First there is a need to expand the revenue base. The best way to do this is to make the environment conducive for businesses to thrive. The government also needs to drastically reduce revenue waste/ leakages. Corruption needs to be curtailed. We need more fiscal discipline on the part of government. We need to drastically reduce the cost of governance.
“You will notice the very high level of recurrent expenditure in the budget. Personnel cost of 5 trillion is about a quarter of the budget. Additionally a huge chunk is also going to be spent on government owned enterprises. What we need to do is to try as quickly as possible to sell off most of these enterprises so that the government can concentrate in the core areas of governance like provision of infrastructure etc. We should even be thinking of letting out some of our infrastructural development to the private sector.
“We need to make the business environment more friendly. There is nothing in the current budget that gives assurance to businesses that there are better days ahead. Manufacturers need to source inputs. There are no guarantees of FOREX for foreign inputs and no guarantees of security for local inputs. There is nothing in the budget that guarantees an improvement in electricity supply. So the outlook for manufacturers and in fact other businesses, especially SMEs is still dire in spite of the huge budget.
Chairman, SMEs Group of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson- Okezie said the high deficit was worrisome because it represents 5.01per cent of our estimated GDP, which is above the 3 percent threshold provided in the fiscal responsibility act (FRA) 2007, noting that the law says deficit should not go above 2 percent .
Dickson Okezie , who pointed out that the budget was still an estimate and a projection, added that with what has been presented, there can’t be a relief in 2023.
There is tendency for this budget to lead to higher inflation rate.
“One of the reasons is the approach of government.
Looking at the pattern of the budget , you will see that a lot of emphasis is made on taxation.
“Who is the government taxing, businesses that have been weakened by the harsh environment.
“When government raises tax without improving the working environment and other enabling factors, there is the tendency that those who will pay the tax will eventually pass it on to others which will eventually lead to inflation. .
He said good governance and corruption are key to good economy, lamenting that nothing was happening in that area. “Investors need to have confidence in the system where they do business.
“We have not moved yet. There is nothing to celebrate as economics is about other factors that drive the economy.
He said for businesses to thrive, some things need to be in place for manufacturers and SMEs and all sectors to grow. There need for good infrastructure.
“The budget is still an estimate and a projection.
