2025 Appropriation Bill: Fiscal hurdle awaits N47.9tr budget, MDAs’ mobilisation capacity
20 November 2024 |
5:35 am
Major revenue agencies, including the Nigerian National Petroleum Company Limited (NNPCL), Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service, may need to magically increase revenue by over 200 per cent next year
• 2025 estimate about $10 billion less than current budget in real terms
• Nigeria is punching below its weight, says don
• Stronger naira may halt recent growth in GOEs’ revenues
Major revenue agencies, including the Nigerian National Petroleum Company Limited (NNPCL), Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service, may need to magically increase revenue by over 200 per cent next year to break the 14-year trend of overstated revenue projections and prevent another failed budget cycle.
The 2025 budget stands to generate contentions at the National Assembly, except the overambitious parameters contained in the Medium-Term Expenditure Framework (MTEF) 2025-2027 are significantly changed.
Although the budget, as well as the revenue review witnessed across government agencies, are only nominal and show no evidence of progress when compared with previous years and benchmarked against the dollar, government agencies seem poised to meet next year’s ambitious targets.
The Federal Executive Council (FEC) had proposed a budget of N47.9 trillion for 2025 as the government hopes for 2.06 million barrels per day of oil production and an oil price of $75 per barrel, projecting an oil revenue target of N19.6 trillion, the share of non-oil taxes of N5.7 trillion, net revenues from government-owned enterprises of N2.87 trillion, independent revenue of N3.6 trillion and other sources accounting for N4.8 trillion.
In a detailed analysis of the projection, the Nigerian Economic Society (NES) said the budget projected N7.68 trillion from oil sales would amount to 41.92 per cent of the revenue of the expected revenue.
Pointing at the core budget figures, the society warned that the expansionary budget could compromise efforts to rein in inflation and make a mess of the efforts of the Central Bank of Nigeria (CBN), which is contradictory to the major focus of the budget, inflation control.
Going by the oil revenue of N1.1 trillion for the first quarter of 2024 with production figures put at 1.7 million barrels per day (bpd) according to the Minister of Finance, Wale Edun, the oil revenue stream could end the year at above N4.5 trillion.
With the production level rising to 1.8 million bpd according to the Nigerian National Petroleum Company Limited (NNPC) and the assurance that it may move to 2 million bpd, Nigeria may see oil revenue at N5 trillion given the projected crisis with the oil price, the global economy and the expectation that the United States would produce more oil.
In 2023, the Federal Inland Revenue Service generated N12.3 trillion in revenue, surpassing the government’s target of N11.5 trillion by seven per cent. In the first quarter of this year, the revenue of FIRS stood at N3.94 trillion, an indication that the revenue could reach N13 trillion by the end of the year.
The Nigeria Customs Service (NCS) generated N3.21 trillion in 2023. As of this November, the revenue collected this year by Customs has risen to N5.7 trillion.
From N361 billion in 2022, the Nigerian Port Authority (NPA) generated N501 billion last year. By implication, the NPA saw a revenue increase of approximately 38.78 per cent from 2022 to 2023. In the first half of 2024, the NPA generated N541 billion, surpassing the total inflow last year. This development may push the revenue of the agency for 2025 to N1.1 trillion.
Apart from NPA, the other 46 government-owned enterprises (GOEs), including the Federal Airport Authority of Nigeria (FAAN) and the Nigerian Communication Commission (NCC), may generate about N2 trillion.
The combination of the revenue may push the government’s total revenue for 2025 to about N21.2 trillion. The revenue-sharing formula between the federal, state and local governments is 52.68 per cent, 26.72 per cent and 20.6 per cent respectively. The 52.6 per cent of N21.2 trillion is approximately N11.15 trillion.
With subsidies of fuel out of the way, Nigeria may need to sustain oil production at about 2.3 million bpd to settle cash call arrears, pay for crude-backed loans and potentially double oil revenue to about N9 trillion.
Given that FIRS generated N12.3 trillion in 2023, N10.1 trillion in 2022 and N6.4 trillion in 2021. The average percentage increase for the years is approximately 40 per cent, which makes it a reliable funding source.
The NPA would also have to target N2 trillion while the rest of the entities would need to provide N3 trillion to cough out an impossible revenue of over N38 trillion for the 2025 budget to give the FG a comfortable share.
Since 2010, Nigeria has underperformed in terms of revenue. In 2010, revenue was projected was approximately N2.5 trillion, while the actual was around N2 trillion. In 2011, budgeted revenue was about N3 trillion, with actual revenue at N2.5 trillion. In 2012, budgeted revenue reached N3.5 trillion, but actual revenue came in at around N3 trillion.
In 2013, budgeted revenue was N4 trillion, while actual revenue was close, at approximately N3.8 trillion. In 2014, budgeted revenue rose to about N4.2 trillion, while actual revenue was slightly lower at N3.9 trillion.
In 2015, when the ruling party budgeted revenue was N3.6 trillion, but actual revenue fell short at N3.43 trillion. In 2016, the projection was N3.86 trillion, while actual revenue was significantly lower, at N3.18 trillion.
In 2017, budgeted revenue increased to N5.08 trillion, but actual revenue dropped further, reaching only N2.85 trillion. In 2018, budgeted revenue was set at N7.17 trillion, yet actual revenue underperformed, amounting to N4.15 trillion. In 2019, budgeted revenue was N6.998 trillion, with actual revenue recorded at N4.77 trillion.
In 2020, actual revenue was N3.42 trillion against a projected N5.37 trillion, with N3.34 trillion spent on debt servicing. In 2021, revenue reached N7.99 trillion out of a N13.59 trillion budget. By 2022, revenue dropped to N5.30 trillion, while expenditures surged to N14.63 trillion, creating a deficit of N9.3 trillion.
In 2023, revenue stood at N5.99 trillion, but expenditures soared to N19.5 trillion, resulting in a deficit of N13.5 trillion, or 225 per cent of the total revenue.
Some economists, who spoke on the budget estimates, said the depreciation of the naira and inflation have rendered the local currency almost worthless, stressing that though the N47.9 trillion 2025 spending proposal may look much higher than the 2024’s consolidated budget of N35 trillion, in terms of real value, they are almost the same.
At the start of the year when the budget implementation started, N35 trillion would amount to about $39 billion. Less than a year later, the proposed N47.9 trillion is equivalent to $29 billion, suggesting that it is about $10 billion less than the running budget in dollar terms.
The Minister of Budget and Economic Planning, Abubakar Atiku Bagudu, had announced that the Medium-Term Expenditure Framework (MTEF) approved by FEC contains a borrowing of N9.22 trillion to finance the budget deficit in 2025.
Nigeria is currently indebted to the tune of N134.3 trillion ($91.3 billion) as of the end of the second quarter of 2024. This was an increase of 10.35 per cent from the N121.7 trillion recorded in the first quarter, according to the Debt Management Office (DMO).
The Central Bank of Nigeria reports that Nigeria’s debt servicing expenses reached N6.04 trillion in the first half of 2024, marking a sharp increase of 68.8 per cent from N3. 58 trillion spent during the same period in 2023.
The country, over the years, has resorted to borrowing to finance its yearly budgets because of its low revenue generation. As of June 2024, Nigeria’s debt-to-GDP ratio rose to 55 per cent marking a significant increase from 42.4 per cent in December 2023.
The government has consistently argued that the country does not have a debt problem because its debt-to-GDP ratio is still within acceptable limits but acknowledges that it has a revenue problem.
To change the narrative, the Tinubu administration recently sent four tax bills, known as the Nigeria Tax Reform Bills, to the National Assembly to modernise revenue collection to meet the needs of the country.
Part of the new tax bill is a proposal to raise the value-added tax (VAT) from 7.5 per cent to 10 per cent by 2025, with further increases to 12.5 per cent from 2026 to 2029, and 15 per cent from 2030 onwards.
Special Adviser to the President of the African Development Bank (AfDB) on Industrialisation, Prof. Oyebanji Oyelaran-Oyeyinka, said the problem of Nigeria is that of an unproductive economy.
Insisting that the N47.9 trillion proposed for the 2025 budget is too small, as it is less than $30 billion, he said Nigeria should stop punching below its weight.
“As small as the United Arab Emirates (UAE) is, it has a budget of $150 billion. The fact is that our annual budgets are too small. That is why we have problems with funding education, health and other social infrastructure.”
While commending the effort to harmonise the tax system, he said the bedrock of economic growth is to make the economy productive.
“If you are not a productive economy, you cannot eliminate poverty,” he said.
A former FCT chapter chairman of the Chartered Institute of Taxation of Nigeria (CITN), Benjamin Ogbeide, said the government is looking at financing the 2025 budget with the expected increased proceeds from VAT.
“But that will come with its challenges,” he said, adding that while the government may be looking at the huge sum that will come into its coffers, it should also know that the increase in the VAT rate will push up inflation.”
He said the most important thing is not collecting tax but using it to provide social amenities for the people. On his part, the Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Sola Obadimu, said: “The Customs is bragging that it has so far made N5.07 trillion. But what is the real value of that amount?”
He also warned that the government should be careful about the way it is going about trying to shore up its revenue because it could also be hurting the economy.
He said the main duty of the Customs is to facilitate trade, not to generate revenue. “If in the course of trying to generate revenue, they impede trade, the economy suffers,” he said.
A professor of the accounting and financial department, Godwin Oyedokun, said given Nigeria’s historical revenue challenges, a proposed budget of N47.9 trillion is undoubtedly ambitious.
He noted that the country has struggled to meet its revenue targets in recent years, often relying heavily on debt financing to bridge the gap. He, however, said the successful implementation of the new tax laws and regulations will be crucial.
“While the proposed budget is ambitious, it is essential to implement effective strategies to increase revenue generation. This includes strengthening tax administration, expanding the tax base, and improving tax compliance. By taking these steps, Nigeria can work towards a more sustainable fiscal future,” he said.
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