Between January and November of last year, the Federal Government incurred astonishing N5.24 trillion in debt servicing costs for its various local and international institutions and people.
This occurred as the government prepared to borrow a new N8.8 trillion in local and foreign markets to fund the implementation of its ambitious 2023 budget.
Recall that the 2023 Appropriation Bill, which outlines a total expenditure outlay of N21.83 trillion, was signed into law by President Muhammadu Buhari on Tuesday.
The President informed Nigerians that Zainab Ahmed, the Minister of Finance, Budget, and National Planning, would meet with National Assembly members to resolve evident anomalies in the appropriation. Of the overall expenditure, N553.46 billion stood out as an unfilled shortfall.
The minister stated yesterday in Abuja that the unpaid portion would come from spectrum fees and taxes on the maritime industry. The government anticipates receiving $273.6 million (or about N123 billion) through a new 5G auction later in the year after receiving the initial inflow from spectrum licensing.
The 2023 appropriation, which political economist Prof. Pat Utomi referred to as “a budget of debt servicing,” has a deficit of N11.34 trillion at a time when the national debt has surpassed N44 trillion and the N22.7 trillion ways and means facility provided by the Central Bank of Nigeria has not yet been securitized (CBN).
The finance minister stated that the government plans to obtain N7.04 trillion from the domestic market, a move that might significantly discourage private investment and ultimately result in job losses.
The remaining amount (N206.18 billion) will come from the proceeds of privatization. The government will look into borrowing N1.76 trillion from the international market and N1.77 trillion from already-existing bilateral and multilateral facilities.
Utilizing the benefits of the revenue reform, the government has raised N10.49 trillion, or 48%, of equity. Given the government’s income predictions’ poor performance over the past year, the aim is a lofty one.
The actual earned income for the first 11 months of last year was N6.5 trillion, which means that the estimated annualized performance fell 33% short of this year’s projection. The objective has been correctly rejected by experts as being unrealistic.
The implementation of the 2023 budget is expected to be hampered by reasons such as frivolous estimates, insufficient revenue from crude oil sales, and a lack of innovation within the government.
According to the finance minister’s report on the implementation of the 2022 11-month budget, as of the end of last November, the government had spent a total of N12.87 trillion, compared to N6.5 trillion in receipts, leaving a fiscal imbalance of N6.39 trillion. The estimated deficit is set at N8.17 trillion with the approval of the supplementary budget.
Sadly, just N1.88 billion had been approved for capital investment as of November, whilst N3.94 trillion was spent on staff costs, including pensions.
In response to the shock of the deficit, the government has allotted a working N228.1 billion for what Ahmed termed as the severance and inauguration of lawmakers without making it clear who receives what in the two categories.
A member will receive an average of N243.17 million if the legislators are paid off with half of the money.
The education sector, on the other hand, benefits from a higher percentage this year, rising to 8.2 percent from the 5.39 percent it received in 2022.
The Tertiary Education Trust Fund (TetFund), the Federal Ministry of Education, and other organizations received a combined N1.79 trillion, or 8.2% of the overall budget.
The 2016 budget allocated 7.9% of the total to the education sector. It was 6.13 percent in 2017, 7.14 percent in 2018, and 7.12 percent in 2019, respectively.
“The projected fiscal outcome in the 2023 budget is based on the PMS subsidy reform scenario. In the 2023 budget framework, it is assumed that the petrol subsidy will remain up until mid-2023 based on the 18-month extension announced in early 2022. In this regard, only N3.36 trillion has been provided for PMS subsidy. There will be tighter enforcement of the performance management framework for GOEs that will significantly increase operating surplus/dividend remittances in 2023,” the minister said.
Ahmed also laid out the underlying assumptions, saying: “The oil price benchmark is set at $75 per barrel. Some of the parameters underlying the 2023 projections deviate from those in the National Development Plan (NDP) 2021-2025. They have been updated based on a combination of current realities and a modified medium-term outlook.”
“The inflation rate is projected to average 17.16 per cent in 2023, and 14.93 per cent is projected in the NDP for 2023.”
“In the 2023 budget framework, it is assumed that PMS subsidy will remain up to mid-2023 based on the 18-month extension announced in early 2022. In this regard, only N3.36 trillion has been provided for PMS subsidy.”
The minister made it clear that Nigeria does not want to restructure its debt and that it will continue to fulfill its responsibilities under both domestic and international debt.
She was quick to point out, however, that the government would keep using the proper debt management tools to reduce the cost and risk profile of the debt portfolio. These tools included concessional loans, spreading out debt maturities to prevent bunching, and re-profiling debt maturities by refinancing short-term debt using long-term debt instruments.
According to the breakdown, N173.6 billion will go to INEC, N165 billion to the National Judicial Institute (NJI), N119.9 billion to the NDDC, N103.3 billion to UBEC, and N51.6 billion to NASENI for the current fiscal year.
The total recurrent and capital spending for defense will amount to N2,98 trillion, or 13.4% of the budget.
The infrastructure sector, which includes construction and housing, power, transportation, water resources, and aviation, receives about N1.24 trillion, or 5.7% of the total budget. Social investments and programs to combat poverty will receive a total of N809.32 billion, or 3.7%, of the budget.
Kelvin Emmanuel, the Chief Executive Officer of Dairy Hills Limited, pointed out that the 2023 Appropriation Act, which was postponed for three months to allow for the adoption of a supplementary budget, is a typical example of pure fabrication while finding holes in the budget’s specifics.
At a time of $100 oil prices and above $30 gas per million metric standard cubic feet, he claimed that the Buhari government spent its eight years in office doing nothing to advance the position of public finance in terms of increasing the revenue to GDP ratio. Instead, he proposed a total funding source of 43% from oil and non-oil revenues and 57% from debt.
He also claimed that the Federal Executive Council’s proposal to amend the finance bill, which would increase the corporate income tax of upstream oil companies from 30% to 50% for flaring gas without a force majeure event, is evidence that it is unaware that International Oil Companies (IOCs) are hindered from maximizing the benefits of capturing gas from wellheads due to a lack of midstream off-takers who are not encouraged to invest.
Emmanuel insisted that the 2023 budget appears to have been created by government employees who are ignorant of how businesses function and how the application of policies can create value.
He questioned why N8.8 trillion in the 2023 budget needed to be obtained through debt financing when the government is now borrowing at a rate of 18% in lower investment grade bond yields. He claimed that this is further evidence that the budget office is sticking with a budgetary plan that mostly relies on borrowing to close budget gaps.
He added that a funding system that includes 40% debt financing means the federal government would keep employing quantitative easing to cover shortfalls.
This occurs at the same time as the Senate denied the President’s request for permission to restructure the $52 billion in outstanding debts, or 133% of Nigeria’s external foreign reserves, that DMO currently owes.
Nigeria is currently experiencing existential issues, according to Eze Onyekpere, the lead director of the Centre for Social Justice (CSJ).
He said it is sad that Nigeria only expects to generate less than N10 trillion in revenue from a budget of more than N21 trillion.
“That means we have close to N12 trillion in deficit financing. This is against a debt scenario of over N44 trillion. Again, recall the N22 trillion in ways and means from the CBN, which the President has sought to reconstruct to a bond, which the National Assembly refused, given the provisions of the CBN Act,” he said.
According to Onyekpere, the economy and the full execution of the budget are facing some significant challenges.
He claims that: “the economic environment is not looking friendly. Most of us are simply looking beyond Buhari to see who will come in and how he will re-engineer the economy because the Buhari administration is already a lost case.”
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