Budget 2023: The planned borrowing of N11 trillion

The rigmarole in the management of the country’s public finance since 2015 came to its climax with the recent announcement by the Federal Minister of Finance, Zainab Ahmed, that government plans to borrow a whopping N11.3 trillion to finance the 2023 federal budget. This projected budget deficit stands at about 5.5 per cent of the gross domestic product (GDP) and is way above the three per cent benchmark set in the country’s 2007 Fiscal Responsibility Act. In addition, it is 54 per cent higher than the estimated deficit for 2021. This is mind boggling.

Ahmed’s disturbing declaration emerged when she appeared before the House of Representatives Committee on Finance in Abuja to defend the 2023-2025 Medium Term Expenditure Framework (MTEF). A budget deficit of N11.3 trillion is far higher than the projected revenue of N8.46 trillion for the entire year. By virtue of this, total government expenditure was estimated at N19.76 trillion while total revenue is N8.46 trillion. It should be noted that the Buhari administration has been running budget deficits since it came into power in 2015 with the proportion of deficits to GDP of 4.33 per cent in 2020 and 4.69 per cent in 2021, in the past two budget seasons. All these have consistently been increasing the country’s public debt portfolio to its current unsustainable level. Which way Nigeria, as the popular song goes? Indeed Nigeria is in a serious fiscal crisis and there appears to be a deficit of political will and clear direction on how to exit the great challenge.

According to the presentation before the House Committee on Finance, the projections made for the 2023 budget were based on two different scenario: If the fuel subsidy regime is terminated in June 2023 or if it is sustained throughout 2023. The quagmire here is that the level of the deficit, either way, is an outcome of government’s lack of political will to address this lingering economic challenge in the past seven years of it being in power. First, the President and his team, before coming to power in 2015, had argued that there was nothing like fuel subsidy but only an avenue for the enrichment of the political class. After they gained power and were confronted with the reality of the existence of subsidy, they changed course albeit with some element of mischief and resorted to unending blame game, lambasting the Jonathan administration for its inaction and incompetence in regards to the vexatious issue. The government did not deem it fit to confront the issue and deal with it expeditiously. Thus no drastic action has been taken on this matter, which ordinarily should have abated by now.

Whether the subsidy will be removed by June 2023 or by December of the same year, the minimum impact this would have on the budget is a whopping sum of N3.36 trillion on government expenditure. It has been argued by various stakeholders, including this newspaper that the Buhari administration should remove this subsidy albeit in phases in order to manage its consequences on the macroeconomy. This was not heeded by the men in power. Due to the desire of the administration to be populist in orientation as well as enhance its fortunes in the 2023 general elections, the doomsday has been postponed to June 2023, at the least. This has made the projected budget deficit for 2023 the mother of all deficits in the history of federal budgets in Nigeria.

The other projected estimates for the 2023 budget are also worrisome. The oil production estimate has been set at 1.69 million barrels per day which is a far cry from the over two million barrels per day usually received as production quota from the Organisation of Petroleum Exporting Countries (OPEC). Even over the past few months, the country has been producing below its OPEC quota due to an increasing spate of oil theft which the government seemingly appears incapable of arresting. Many oil exporting countries have made significant gains in revenue due to the increased price of crude in the global market due to the war in Ukraine except Nigeria due primarily to oil theft. The paltry N1.9 trillion expected as oil revenue for 2023 could have been a lot more. Also, setting the GDP growth rate at 3.7 per cent and inflation at 17.16 per cent appears difficult to attain given the current inflation rate of about 20 per cent and the likely effect oil subsidy removal in June 2023 will have on prices especially through the transportation price multiplier and its effects on other sectors in the economy.

Getting out of this crisis can be challenging and with its various consequences. First, the spate of borrowing needs to be watched very closely. The proposal of government to borrow as much as N9.32 trillion with N7.4 trillion of this coming from the domestic credit market has serious implications for the growth of the private sector in the market due to the crowding out effect of government borrowing in the market. If government borrows that much from the domestic market, how much will be left for the private sector businesses in the country to borrow? These actions also have effect on money supply and the level of prices in the economy. It needs to be checked. Second, the security agencies need to address the seemingly booming business of oil theft. Some have alleged that there could be some measure of connivance by highly placed government officials. Government will thus do well by debunking this allegation through a swift intervention on this lingering issue.

Other things government can do, and very quickly too, is to cut the cost of governance. This has been re-echoed by many and it bears repetition since it will help in the reduction of the ever-increasing level of aggregate government expenditure and the budget deficit. To raise more tax revenue, more people may need to be brought into the tax net, particularly the ultra-rich, who definitely need to pay their fair share of taxes. As things stand, the level of the budget deficit is alarming and urgent action is needed to get the country out of the impending economic Golgotha.