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In the midst of worsening economic situation, the Federal Government last week unveiled a budget proposal of N19.76 trillion for the 2023 financial year with a borrowing plan of N11.30 trillion as well as the sale of some national assets to finance budget deficit, which may increase by 54 per cent. The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed this when she appeared before the House of Representatives Committee on Finance to defend the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper.
The proposed budget estimate is 15.37 per cent higher than the amount earmarked in the 2022 budget. According to the minister, the budget deficit is expected to exceed N13.42 trillion if it must keep petroleum subsidy for the entire 2023 fiscal year. Already, the government has proposed to spend N3.36trillion on petrol subsidy in the first six months of 2023.
The budget deficit represents five per cent of estimated Gross Domestic Product (GDP), which is above the three per cent threshold recommended in the Fiscal Responsibility Act, 2007. The government has also projected total revenue of N8.46trillion, out of which N1.9trillion is expected to come from oil-related sources, while the balance will come from non-oil sources. The budget is predicated on a crude oil price of $70 per barrel, and exchange rate of N435.57/$, oil production estimate of 1.69 million barrels per day, real GDP growth of 3.7 per cent, and average inflation rate of 17.16 per cent.
The latest inflation rate is 19.64 per cent, the highest since 2005. While the government plans to spend 60 per cent of the total revenue on debt services, there are fears that the ratio may increase to 90 per cent of the revenue, if the nation’s revenue generation does not improve significantly. Instructively, the government is doing so much to improve tax administration and collection.
Clearly, the nation’s economic outlook is bleak. The situation may get worse with additional borrowing and political spending as we approach the election season. Experts have warned of the consequences of another recession. For the government to avert another recession, we need to urgently put in place pragmatic fiscal and monetary policy measures. The cost of governance has to be drastically reduced at all tiers of government. Fixing the economy requires sound fiscal and monetary management.
According to latest figures from the Central Bank of Nigeria (CBN), the country earned N799 billion from oil revenue in Q1 2022. This represents a decline of 28 per cent in the corresponding period of 2021. Undoubtedly, the nation’s economy has not been adequately managed. The nation’s rising debt profile requires a rethink in the sourcing of loans and spending of borrowed funds. The current debt stock of N41.6trillion excludes N20.61trillion loans from the CBN to the Federal Government through Ways and Means, which is one of the key resources for defraying government urgent expenses. In spite of this humongous amount from the CBN, recent statistics on government revenue showed poor performance and high cost of government. For instance, government’s aggregate expenditure for 2022 was estimated at N17.32trillion, but at the end of Q1 2022, the sum of N5.77trillion was expected, but only N1.63trillion was realised. The government’s actual spending stood at N4.72trillion, including N1.94trillion on debt servicing, N1.26trillion on personnel cost, leaving only N773.63billion for capital expenditure. Under the prevailing situation, there may not be enough funds for capital expenditure due to the high deficit in the budget.
We doubt if most of the assumptions in the budget will be realised as the country is currently experiencing disruptions in the food production sector due to insecurity. Already, the 2022 budget assumptions have fallen short of target because of rising inflation, exchange rate and low GDP growth. Nigeria’s debt-to-GDP ratio now stands at 23.27 per cent, as against 22.43 per cent as of December 31, 2021. It is also sad that Nigeria is not benefiting from the high price of crude oil in the international market due to oil theft and pipeline vandalism.
It is alarming that Nigeria’s debt servicing will gulp 100 per cent of government’s revenue by 2026 if the incoming administration fails to implement far-reaching measures to improve revenue generation. The minister stated that much while addressing the House of Representatives Committee on Public Finance and Accounts, last week in Abuja. As we have repeatedly cautioned, government should suspend further borrowing.
The borrowed funds have not impacted positively on the economy, even with risks of default in repayment looming. Investing in production rather than consumption is the way to go. Using five per cent of total revenue to service our debts is fair enough rather than the huge amount currently being spent on debt servicing. Let the government cut the cost of governance and design alternative strategies of raising revenues instead of the present binge borrowing that is fraught with risks of mortgaging the sovereignty of the country.
