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2022 budget: Expect more borrowing to finance N6.258tr deficit, says FG

By Geoff Iyatse (Assistant Business Editor), Terhemba Daka and John Akubo (Abuja)
07 October 2021   |   4:30 am
Despite outcry and protests against the administration’s penchant for frequent borrowing, the Federal Government, yesterday, hinted of its plan to borrow more to finance the N6.258 trillion deficit in the proposed 2022 budget.

Mrs. Zainab Ahmed, Honourable Minister of Finance, Budget and National Planning

• Senate hastily okays revised fiscal framework, approves N16.39tr budget for 2022
• Buhari presents ambitious appropriation amid weak 2021 budget performance
• N16tr spending plan amounts to ‘overtrading,’ says Adonri

Despite outcry and protests against the administration’s penchant for frequent borrowing, the Federal Government, yesterday, hinted of its plan to borrow more to finance the N6.258 trillion deficit in the proposed 2022 budget.

This was disclosed after the Federal Executive Council (FEC) approved N16.39 trillion for the 2022 Appropriation Bill.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, who briefed newsmen, stated that the administration would continue to borrow to fund infrastructure projects as the government does not get much from its revenue sources.

Justifying government’s position, Ahmed said Nigeria’s revenue could barely accommodate services, noting that despite the concerns, its borrowings are still within acceptable limits as the total money borrowed as at July 22 was 23 per cent of the Gross Domestic Product (GDP).

“If we just depend on the revenues that we get, even though our revenues have increased, the operational expenditure of government, including salaries and other overheads, is barely covered or swallowed up by the revenue. So, we need to borrow to be able to build these projects that will ensure that we’re able to develop on a sustainable basis.

“Nigeria’s borrowing has been of great concern and has elicited a lot of discussions. But if you look at the total size of the borrowing, it is still within healthy and sustainable limits. As at July 2021, the total borrowing was 23 per cent of GDP. When you compare our borrowing to other countries, we are the lowest within the region, lowest compared to Egypt, South Africa, Brazil, Mexico and Angola.

“We do have a problem of revenue. Our revenues have been increasing. We just reported to FEC that our revenues from non-oil has performed, as July, at the rate of 111 per cent, which means outperforming the prorated budget.

“But our expenditure, especially staff emoluments, have been increasing at a very fast rate, making it difficult to cope with funding of government.

“So, what we have to do is a combination of cutting down our cost, as well as increasing revenue to be able to cope with all that is required for government to do, including salaries, pensions, debt service and capital expenditure.”

The Minister said Council also noted the changes in the 2022-2024 fiscal projections based on implementation of the Petroleum Industry Act (PIA) 2021 and other necessary expenditures that should be accommodated in the 2022 budget.

She predicated the key assumptions and targets underlying the budget provisions to include oil price at $57 per barrel; oil production at 1.88mbpd; exchange rate at N410.15/US$; oil revenue at N3.15 trillion and non-oil revenue at N2.13 trillion.

Other assumptions are Federal Government’s independent revenue of N1.82 trillion; total projected Federal Government revenue of N10.13 trillion; debt service of N3.61 trillion; statutory transfers of N768.28 billion (including N462.53 billion capital component) and personnel costs and pensions of N4.69 trillion.

“The resultant deficit of N6.258 trillion will be financed by new borrowings of N5.012 trillion; drawdowns on Project-tied Multilateral/Bilateral loans – N1.156 trillion; and privatisation proceeds of N90.73 billion,” she stated.

AHEAD of today’s budget presentation to the National Assembly by President Muhammadu Buhari, the Senate, yesterday, hurriedly approved the President’s revised submission of the 2022-2024 Medium Term Expenditure Framework (MTEF).

The Senate President, Ahmad Lawan, after receiving the revised submission, referred it to the Committee on Finance on Tuesday for expeditious consideration within 24 hours. Hence, the approval of the revised framework, yesterday, followed the hasty consideration of the report by the Committee on Finance.

The Senate, in its recommendation, approved the aggregate expenditure of N16.39 trillion from the previous N13.98 trillion for next year.

MEANWHILE, financial experts have described the ambitious N16.45 trillion proposed spending outlay to be presented today at the National Assembly as “worthless and unachievable targets.” This, they staked, on the back of weak budget performance, contracting revenues and rising fiscal deficits.

A financial analyst and economist, David Adonri, described budgets as academic exercises embarked upon to fulfill all righteousness as against economic development tools they are originally meant to serve.

Nigeria has, in recent years, adopted an expansionary fiscal stance while the revenue mobilisation capacity has either contracted or remained stagnant. In many cases, projected fiscal deficits exceeded projected shortfalls by as much as close to 100 per cent as revenues dip.

Buhari will present the appropriation amid what many have seen as a poor scorecard of the 2021 budget performance as revealed by the National Budget Office, an agency of the government.

According to the performance document just released by the office, half-year actual revenue was 20 per cent short of the estimated N4.2 trillion the Federal Government aspires to realise.

Within the six months, the government’s total revenue generated was N3.38 trillion. But for the accruable from the value-added tax (VAT), which was eight per cent above the targeted N1.7 trillion, the shortfall would be worse.

The revenue and expenditure outturn of the Federal Government resulted in a fiscal deficit of N3.5 trillion (4.4 percent of prorate GDP) in the first half of 2021. This was N1.038 trillion (42.5 per cent) above the projected half-year deficit of N2.4 trillion.

It was also above the N2.8 trillion deficit posted in the first half of 2020. The Budget Office said the deficit was financed through domestic borrowing of N1.2 trillion thereby reflecting negative net financing of N2.2 trillion. This has been the trend in recent years.

In 2020, less than 51 per cent of N10.8 trillion targeted total revenue was achieved. The 49.4 per cent shortfall shot up the projected fiscal deficit of N6.6 trillion. The amount was N2 trillion or 43 higher than the projected fiscal deficit of N4.6 trillion for the year. The 2020 fiscal deficit was also higher than the N4.2 trillion recorded in 2019.

The same VAT source that contributed a large portion of the revenue to government faces an enormous challenge after a Federal High Court sitting in Port Harcourt ruled in favour of Rivers State government over who, between state and Federal government, should control and retain VAT.

The Federal Inland Revenue Service (FIRS) has appealed the ruling with some Northern and Southern states are aligning appropriately. But there are concerns that the current fragile fiscal position of the Federal Government would deteriorate should Southern states win at the Supreme Court.

The Southern states have resolved to pursue the litigation to a logical end with Lagos State governor, Babajide Sanwo-Olu, saying the demand by federating states for a sharing formula that is just, fair and equitable was not controversial but a reflection of the contribution of states to the common purse.

ALSO, the national debt ballooned, following the expanding fiscal deficit, to N35.5 trillion at the end of the second quarter. Of the total value, 83.07 per cent was held by the Federal Government, while the 36 states and the Federal Capital Territory (FCT) borrowings accounted for 16.93 per cent.

The percentage of FG’s share of the national debt had increased from 81.94 per cent as of December 2020 to its current share.

Experts, including the Director-General of the Debt Management Office, Patience Oniha, expressed concern that unless the revenue profile is raised substantially, the country would face debt sustainability challenges.

“We should focus on revenue. The good thing about it is that the Minister of Finance, Budget and National Planning has started a programme aimed at growing the revenue profile. We must discipline ourselves to follow through to grow our revenue. If we continue to borrow and do nothing about growing our revenue base as other countries have done, we may have a debt sustainability challenge,” she said.

The Federal Government is proposing a fresh borrowing of at least N15 trillion in the 2022 – 2024 Medium Term Expenditure Framework/Fiscal Stability Paper (MTEF/FSP).

Already, there is a N10 trillion ways and means facility (WMF) with the Central Bank of Nigeria (CBN), which the DMO said would be converted to a long-term debt instrument.

The country’s debt servicing to revenue ratio jumped from 54.7 per cent in 2019 to 72 per cent in 2020, and experts said the figure could go higher before the end of the year except urgent steps are taken to shore up earnings.

Whereas experts have called on the government to reduce the cost of governance, government officials, including the Director-General of the Budget Office, Dr. Ben Akabueze, have insisted that the problem is more of poor earnings than extravagant spending.

Speaking on the history of failed targets, yesterday, Adonri dismissed the annual budget as only good for academic exercise. He said the government may have done its estimates on mere hope, without thorough analysis.

“The target for 2022 itself is an extravagant, unrealistic and worthless target because the prevailing situation cannot generate non-debt income to support it. If it is to be realised, it means the current borrowing will be increased, which will be an albatross of economic destruction,” he said.

A professor of economics at the Olabisi Onabanjo University, Sheriffdeen Tella, said the 20 per cent shortfall in revenue mobilisation for the first half of the year was not too bad a performance. He said more revenues could be realised from sources to make up in the next few months before the end of the year.

“We can improve on the efficiency of the budget if past projects and projects start yielding returns if we minimise wastes and linkages in the implementation. The budgets should not be overambitious, relying on loans,” he advised.