FG prioritises NASS, State House spendings amid MDAs’ funding crisis
06 August 2024 |
5:40 am
• Three top spending items overrun estimates, receive N140.6b in six months • 51% of N19.4b H1 budgetary allocations held back • Agricultural research, foreign missions get zero funding • Stakeholders fear regulatory crisis in oil sector, disregard for PIA • Concerns over idle oil blocks, fate of NNPCL • Nigeria loses $7.2 billion to…
• Three top spending items overrun estimates, receive N140.6b in six months
• 51% of N19.4b H1 budgetary allocations held back
• Agricultural research, foreign missions get zero funding
• Stakeholders fear regulatory crisis in oil sector, disregard for PIA
• Concerns over idle oil blocks, fate of NNPCL
• Nigeria loses $7.2 billion to underproduction in six months
The widening gap between expenditure and revenue may have reached a crisis level in the past few months, leaving the Federal Government with a spending shortfall of over 50 per cent in the first half (HI) of the year, documents obtained by The Guardian have shown.
Against the backdrop of poor funding, the government continues to prioritise political office operations at the cost of starving critical agencies and infrastructure-heavy ministries, with the National Assembly, State House and Presidential air fleet receiving N140.56 billion from January to June. While the receipts are huge, the three items could stoke a distortion even in resource allocation to other areas in the second half (H2) as they had overdrawn their earmarks in H1.
Following the huge deficit, many ministries, departments and agencies (MDAs) were grossly underfunded in HI, a challenge that left some cost lines receiving zero allocation for six months.
The Government Integrated Financial Management Information System (GIFMIS), a platform that collates and harmonises all government expenditures, puts the prorated H1 MDA funding at N19.42 trillion. But only 49 per cent or N9.53 trillion was released to establishments for utilisation at the close of the period.
The original 2024 budget was N28.7 trillion. With N9.9 trillion earmarked for debt service and statutory transfers, MDAs were left with a total of N18.8 trillion for recurrent and capital programmes. Recently, a N6.2 trillion supplementary budget was passed into law, raising the composite 2024 budget by 21.6 per cent to N34.9 trillion.
The National Assembly had extended the implementation of the 2023 budget to December 31, 2024. Thus, the GIFMIS captures N38.8 trillion as total disbursable to MDAs in the year.
The shortfall in funding in H1 – almost N9.9 trillion in total – resulted in zero or near-zero funding for some vital institutions. For instance, whereas the country is battling the scourge of the food price crisis, the Agricultural Research Council of Nigeria had received only 1.79 per cent of its budgeted funds for the year.
The Bureau of Public Sector Reforms also received zero funding, implying that the agency may have been left to the mercy of grants and donors’ funds to survive. Almost all Nigeria’s foreign missions have not been funded since the beginning of the year, according to the document.
While organisations considered highly relevant to addressing the current economic crisis, such as the agricultural research institute, bear the brunt of paucity of funds, the amount due to the National Assembly in H1 was fully released. Of N172.4 billion total yearly budgetary allocation for the federal parliament, N86.2 billion was released as at the end of June.
Presidential air fleet (headquarters) had been funded to the tune of N13.86 billion since the beginning of the year. The year-to-June funding was 66.9 per cent of its budgetary allocation (a total of N20.7 billion), suggesting the yearly allocation be overrun before the end.
State House Headquarters has also overdrawn its disbursement for the year, receiving 56 per cent out of N71.66 billion earmarked for its operation in the year. With N40.5 billion released in H1, the spending item has N31.16 billion left for the H2 of the year. Historically, the State House is a top priority in funding and often enjoys 100 per cent funding even in austerity.
Altogether, the National Assembly, presidential air fleet and State House Headquarters received N140.56 billion, which was above the prorated funding estimates, in H1 when most MDAs wallowed in what appears like austerity.
The Federal Government has been under intense pressure to secure adequate funding for both the 2023 and 2024 budgets. While the 2023 budget performance report is yet to be released, there are speculations that much of the deficit was left unfunded.
The interim report released by the Budget Office estimated the unfunded deficit of the first three quarters of 2023 at nearly N1 trillion, the highest the country has recorded.
Still, there are concerns that the current foreign exchange crisis and revenue shortfall will worsen in the months ahead as the country struggles with shrinking oil production, domestic crude obligations and numerous crude-back loans.
These come on the backdrop of a directive by President Bola Tinubu to the Nigerian National Petroleum Company Limited to sell in naira 450,000 barrels per day (bpd) of crude to Dangote Petroleum Refinery and other domestic refiners.
There are indications that Nigeria may not export a significant volume of oil in the coming months if the directive of the President is enforced, thereby worsening the FX liquidity crisis.
However, the implementation will come with both negative and positive consequences. It will drastically reduce the billions of FX required for fuel imports yearly and create a hole in dollar earnings. The overall net gain will depend on which impact outweighs the other.
While Nigeria had earlier borrowed $3.3 billion through African Export-Import Bank (Afreximbank) with a commitment of paying back with 90,000 bpd and $2 billion loan with 50,000 bpd as collateral, there are indications that similar deals under the previous administration as well as uncleared commitments under direct sales direct purchase deal take away estimated 140,000 bpd from the production volume.
The joint ventures account for about 70 per cent of the country’s production, where NNPC owes about 60 per cent share and the deep water 30 per cent.
Nigeria’s oil production has improved marginally in past months with President Bola Ahmed Tinubu disclosing that the country produced 1.61 million bpd last month. But Nigeria’s share of the average production, which averages 1.3 million bpd from analysis of stable data, stands around 780,000 bpd.
With over 280,000 bpd committed to oil-backed loans and 450,000 bpd now to be ceded to local refineries, the country may be left with 50,000 barrels for daily sale.
With the price of oil crashing to about $76 per barrel, the 50,000 bpd would amount to about $4 million per day, a development that will impact foreign reserves severely.
Stakeholders in the oil sector have expressed fear over the political influence in the oil and gas sector. They insisted that it is contradictory to the Petroleum Industry Act (PIA) to make regulatory and commercial decisions on political considerations.
Some industry players have also asked the NNPCL to let go of the idle oil blocks in its portfolio to unlock over 500,000 bpd in the face of the country’s inability to meet budget targets of 1.78 million bpd and the Organisation of Petroleum Exporting Countries (OPEC) quota.
In the first six months of the year, when compared with the budget benchmark, Nigeria recorded 88.2 million barrels shortfall, translating to about $7.2 billion loss.
A stakeholder, who pleaded anonymity, described the current crude arrangement by the President as a political arrangement that is not sustainable. He insisted also that the move is a modified crude oil swap similar to what the country was doing under the direct sale and direct purchase agreement.
With Afreximbank not trading locally in naira, the source said the deal is complicated and could increase the joint venture issues between NNPC and the oil companies that are already owed cash call areas.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of economics at Babcock University, Segun Ajibola, said the downside of the inevitable support for local refineries is the likely reduction in foreign exchange earnings due to a decline in the volume of crude export.
“For now, Nigeria still needs every dollar that could be earned to support the importation of necessities, industrial raw materials and spares as well as debt service,” he said. He noted, however, that the readiness to sell crude to Dangote and other local refineries with naira as a means of settlement is a major paradigm shift.
Ajibola said the most encouraging aspect of the deal is the commitment of the Presidency to support local investors in the oil refining business, thereby sending positive signals to the investing public.
He said the move would save Nigeria foreign exchange hitherto expended on the importation of refined products, noting that the policy stance can improve the foreign exchange reserves, stabilising the foreign exchange market and providing the users of foreign exchange more access to the scarce commodity for more critical purposes.
Ajibola was worried over the possibility of providing the crude as the country’s oil production is low, noting that the country needs to urgently raise output level and expand the scope of foreign exchange supply through non-oil exports, and remittance inflows among others.
Ajibola said: “The ultimate would be a restructuring of the economy to reduce overall reliance on importation of basic household and industrial needs. It is therefore expected that more incentives would be rolled out to encourage the real sector and raise the productive capacity of the local economy.”
An energy expert, Dan Kunle, said oil blocks that are idle without active investment and production, especially Oil Mining Licence (OML) 42, 11, 25 26 and OPL 245 could bring on stream 500,000 barrels per day to the basket of the country.
He said NNPC must hand over the assets to the private investors who borrowed money to buy 45 per cent of some of these assets, especially OML 42. He insisted that if Tinubu fails to reorganise NNPC, Nigeria will import crude oil and gas to sustain the economy.
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