Fed Govt Blames Insecurity, Low Earnings For Higher Borrowings
A gloomy picture of how insecurity, low earnings, and inability to meet the Organisation of the Petroleum Exporting Countries’ (OPEC) quota for oil production drove excessive borrowing by the Federal Government was painted by the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, yesterday.
The minister, who unfolded these disturbing scenarios at the public presentation of the 2022 FG budget proposal – breakdown and highlights in Abuja yesterday, however, insisted that Nigeria’s debt service/revenue ratio, which stands at 76 per cent as at November 2021, though higher than that of some African top economies proves that the challenge that confronts Nigeria is not that of debt sustainability but that of revenue.
Consumers of carbonated drinks are also expected to pay more as the Federal Government is set to introduce new and further increases in existing pro-health taxes on such drinks.
“There’s now an excise duty of N10/ per litre imposed on all non-alcoholic and sweetened beverages. And this is to discourage excessive consumption of sugar in beverages, which contributes to a number of health conditions including diabetes and obesity,” she said.
With the admission that the mounting debt profile is scary, Dr Ahmed held that Nigeria’s budget deficit to GDP, which stands at -4.3 per cent as of November 2021 and debt/GDP ratios of 30 per cent, as of September 2021, is the lowest among Africa’s leading economies.
She further stated that tax rates and compliance ratios are significantly higher in other countries, saying Nigeria’s Value Added Tax (VAT) is the lowest in Africa and less than 50 per cent of the average rate.
Revealing where most of Nigeria’s money has been going, she said: “To compound matters, the country has technically been at war, with the pervasive security challenges across the nation. This has necessitated massive expenditure on security equipment and operations, contributing to the fiscal deficit. The Defence and Security sector accounts for 22 per cent of the 2021 budget.”
This comes as the Federal Government expressed optimism that Nigeria will surpass the N1 trillion mark collection for independent revenues.
According to her, efforts aimed at addressing revenue leakages include concluding the service-wide implementation of Integrated Personnel and Payroll Information System (IPPIS), dimensioning cost of tax waivers and promoting policy dialogue and transparency around tax waiver regimes.
The Federal Government also restated its commitment to the removal of subsidies on petrol and electricity tariffs which it termed ‘regressive subsidies’ on petrol price and electricity tariffs.
The steps also include a cost-to-income ratio cap for government-owned enterprises with a view to improving remittances to FGN’s coffers.
She hinted efforts are ongoing to fix Nigeria’s revenue challenge, saying cutting expenditure is not currently a viable option, as Nigeria’s Public Expenditure/GDP ratio is also the lowest among Africa’s leading economies.
The Minister was quick to caution that the government must continue to rationalise its expenditures, as it cannot afford waste.
“In reality, our largest expenditure items are currently personnel costs, debt service and capital expenditure, which between them account for 85 per cent of the 2022 budget.
There is very little scope for a cut in any of these over the medium term. The most viable solution to our fiscal challenge, therefore, remains to grow our revenues and plug all leakages.
“Our target over the medium term is to grow our Revenue-to-GDP ratio from about eight to nine per cent currently to 15 per cent by 2025. At that level of revenues, the Debt- Service-to-Revenue ratio will cease to be a critical concern. The SRGI and other ongoing initiatives will address this,” she explained.
Dr Ahmed said measures would be taken under the administration’s strategic revenue growth initiatives to improve government revenue and entrench fiscal prudence with emphasis on achieving value for money.
She listed measures that would be taken to boost revenue to include improving the tax administration framework including tax filing and payment compliance improvements.
The Federal Government will also set yearly ceilings on tax expenditures to better manage their impact on already constrained government revenues and ensure that MDAs appropriately account for and remit their internally generated revenue.
The overall budget deficit is N6.39trillion for 2022. This represents 3.46 per cent of GDP. The budget deficit is to be financed mainly via borrowings. The government will borrow N2.57 trillion domestically while foreign borrowings will be N2.57 trillion.
Multilateral/bilateral loan drawdowns are N1.16trillion and privatisation proceeds are expected to fetch N90.7 billion.
An economist, Tope Fasua, urged the Federal Government to go after the rich who do not pay the correct tax.
“These initiatives are good. I wished they came five, six years ago. But now that they are here, the government should be able to realise their objectives.”
On his part, Chibuzor Okereke of the African Centre for Legislative Practice and Democracy raised the inability of Nigerians residing in the rural areas to participate in the budgetary process such as monitoring and implementation, saying, “I see that most of the initiatives are urban biased. The most important thing in the budget is how it affects the common man on the street. How does it affect local people in our villages?”