N20.51trn 2023 Budget: Rising Deficit, Declining Revenue Raise Concerns

 

The success of the N20.51 trillion 2023 budget depends on extensive fiscal and monetary measures to address the wide gap between Nigeria’s declining revenue and productivity levels and its ballooning expenditures.

Economic and financial experts yesterday took cursory look at the N20.51 trillion budget for 2023 presented to the National Assembly by President Muhammadu Buhari at the weekend and expressed mixed reactions to the realisation of the key objectives and headline figures of the budget.

While experts appeared to agree largely on the need to fast-track infrastructural development, they rued the disproportionate budget allocations marked 20 per cent increase in non-debt recurrent expenditure amid rising three-quarter growth in debt service and decline in capital expenditure.

Themed “2023 Budget of Fiscal Consolidation and Transition”, the proposed 2023 budget has an oil price benchmark of $70, with an oil daily production of 1.69 million barrels per day; an exchange rate pegged at N435.57 to a dollar; projected Gross Domestic Product (GDP) growth rate of 3.75 per cent and a 17.16 per cent inflation rate.

Managing Director, Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe said the size of the budget was not unexpected given the government’s commitment to infrastructural development but cautioned that some of the budget assumptions were too ambitious in the context of scenarios.

According to him, the government needs to take further look at the budget to realign its expectations with global and national macroeconomic realities while simultaneously working to reduce its expenditure profile.

“While some of the assumptions are realistic, others are over optimistic given the situation on ground. For instance, the benchmark price of crude oil is quite realistic considering that oil price has been hovering around the $100 per barrel consequent on the Russian-Ukraine war which has no end in sight.

“Also, the projected 3.75 per cent growth in Gross Domestic Product (GDP) is also realistic as the country has recorded growth for seven consecutive quarters.

“However, the assumption of 1.69 million barrels per day (mbpd) seems not too realistic as the country has consistently fallen short of the OPEC’s quota in 2022 and at some point struggled with about 900, 000 mbpd. The issues that caused this shortfall have not been resolved and more tension might be brewing in the Niger Delta region even with the appointment of a former militant leader to safeguard pipelines without the inclusion of other groups. For the assumption on inflation, it looks over-optimistic considering the fact that two successive policy rate hikes were not sufficient to curb inflation,” Amolegbe, the immediate past president of Chartered Institute of Stockbrokers (CIS) said.

A Professor of Capital Market and President, Association of Capital Market Academics of Nigeria (ACMAN), Uche Uwaleke said the early presentation of the budget proposal was commendable as it ensures the sustainability of the return to the January to December budget cycle.

He described as noteworthy the fact that the Finance Bill will be considered alongside the 2023 Appropriation Bill while the budget of government-owned enterprises is also integrated to promote transparency.

“I think the oil price benchmark of $70 is conservative in line with budget principles. I also think the oil production benchmark of 1.69mbpd is realistic given the assurance by the president that the NNPC Limited is doing something to curb oil theft and pipeline vandalism.

“It is, however, worrisome that capital expenditure as a proportion of total spending has gone down well below the government target of 30 per cent while debt service at over N6 trillion is in excess of amount budgeted for capital expenditure.

“As the president rightly noted, the greatest threat to budget performance is the revenue side. This is why every effort must be made to improve revenue collection efficiency as well as monitor closely the ministries, departments and agencies (MDAs) and government-independent revenues.

“I also think the fiscal deficit of over N10 trillion can be trimmed, especially by pruning the over N1 trillion overhead costs,” Uwaleke, a senior faculty member at Nassarawa State University, said.

In an executive summary, KPMG Professional Services highlighted critical matters that could likely affect budget assumptions and performance to include free and fair conduct of the 2023 general elections, removal of petrol subsidy, OPEC+ production cuts and quota allocation and the impact of the flooding of Nigeria’s “food basket” amid the Russia-Ukraine war.

According to KPMG, the key drivers for the realisation of the budget assumptions and objectives include increasing energy capacity with more local capacity for crude oil refining, power generation and transmission and curbing of crude oil theft.

KPGM noted the need for innovative deficit financing in the light of current global economic realities.

A Senior Lecturer, Department of Social Sciences, University of Lagos, Dr Kamar Sheidu, said given the parameters of the budget and the manner of its planned funding, then the country will be faced with an increased burden of debt servicing both for now and the future generations.

“The N20.51 trillion budget will be funded by internally generated revenue from oil, non-oil and others that amount to N9.73 trillion and the balance of N10.78 trillion will be borrowed from the external and internal sources. The implication of this is that it will increase the burden of debt services on the nation and future generation.

“The impact of the burden on inflation could be positive or negative depending on rationality and spending behaviour of the government. If the government spends a good percentage of the budget transparently on the expansion of agricultural sector, reducing infrastructural deficits, and promoting human capital development, it will reduce inflation, otherwise if the government is not sincere in the spending on the priority sectors of the economy, it will aggravate inflation,” Sheidu said.

He said once the government prioritises its spending on the real sector economy such as agriculture, infrastructure, health, education, fixing refineries, manufacturing sector and industrialisation, it will create more jobs and reduce poverty.

According to him, the budget will have a symbiotic relationship with the economy, rather than having a parasitic relationship.This situation will depend on the spending behaviour of the government in all ramifications. The institution that is created to fight corruption should be enhanced to function and the three arms of government should be totally separated and have a check and balance.

He said the divergent foreign exchange would impact the budget and the economy negatively because Nigeria operates dual exchange rate that we have official window and parallel market. He argued that majority of the people that want to do business could not get official rate of N435.57 to a dollar. They had to patronise parallel mart of close to N750 to a dollar that is expensive and the macro economic effects of that is high inflation on the cost of food items and cost of production.

Sheidu said through massive investment in agriculture, training and capacity building for farmers, women and young Nigerians. He urged the government to create an enabling environment for agriculture through provision of agriculture fertilizer and farm inputs.

Banks, he said, should create special windows for farmers that will attract lower interest rate to stimulate agricultural production that will enhance employment, forex, revenue generation, local raw materials, enlarged domestic market and promote import substitution.

Managing Director, Centre for the promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, the proposed 2023 budget has further amplified the troubling fiscal outlook for the economy as expenditure continues to accelerate amid consistent weak revenue performance.

“In all probability, the deficit will be much bigger by year-end because of the track record of revenue under performance over the last couple of years. We are also likely to see an acceleration of Central Bank of Nigeria (CBN) financing of fiscal deficit given the revenue performance trajectory,” Yusuf said.

He noted that the public debt stock is growing and currently at N42 trillion and with additional new borrowing of N8.8 trillion, the debt profile will be inching close to N50 trillion by May next year, warning that if the current borrowings from the CBN, which is currently about N20 trillion, the country may be confronted with a total debt of N70 trillion by end of 2023.

Yusuf, a former director general of Lagos Chamber of Commerce and Industry (LCCI), advised that a number of issues need to be addressed to achieve fiscal sustainability aspiration.

According to him, government owned enterprises managing huge economic assets need to justify the value of assets at their disposal to discourage what is obtainable now where returns on investment on those assets have been consistently sub optimal for many years.

Stressing the need for oil revenue performance to be much better given the prevailing global oil price, Yusuf urged government to urgently address the lapses in the petroleum upstream ecosystem, especially the impunity of crude oil theft and vandalism of oil facilities.

He also cautioned that the foreign exchange policy regime is adversely impacting on business environment and needs to be urgently addressed as a weak private sector performance would naturally affect non-oil tax revenues.

“There is a need for budget reforms. The budgetary appropriations must reflect urgent national economic priorities. There are also concerns about value for money and other forms of fiscal leakages. The Auditor General of the federation had severally raised these concerns.

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“We agree with the President that funding of tertiary education cannot be adequately and sustainably supported exclusively from government budget. New funding models need to be urgently explored for adequacy and sustainable funding. Current budgetary provisions need to be augmented from new innovative funding windows,” Yusuf said.

Director General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Sola Obadimu, described the N20.51 trillion 2023 appropriation bill as “a non-performing budget”.

According to him, if the federal government was proposing a N20.51 trillion budget, with a deficit that will be financed mainly through new borrowings to the tune of N8.80 trillion, coupled with the fact that it still has to service existing debts and pay interest on the principal, it means we have a budget that is totally focused on debt servicing.

“I think it’s a non-performing budget, a budget that is probably not expected to achieve much, if anything,” Obadimu said.

He also condemned the government’s idea of budgeting and including borrowing as part financing.

“It’s a habit that we have to drop. Continually borrowing to finance your budget shows lack of discipline. Even on household basis, if you have your monthly income and you are continually projecting to keep borrowing, it means you are living a life that is not sustainable,” Obadimu said.

Director, Centre for Social Justice, Eze Onyekpere, described the budget as “unrealistic.”

According to him, there is no justification for government to preset such budget at a period of low revenue and ability to repay debts is doubtful.

He said a review of some of the objectives of the government’s macroeconomic projections in the Medium Term Expenditure Framework shows some inherent challenges with evidence-based forecasting and logical consistency.

“My immediate comment is that 2023 budget is unrealistic. The revenue projection is not realistic. Deficit is high and has opened room for new borrowing. President Buhari is likely to leave power with N73 trillion debt,” Onyekpere said.

He said that prospect of raising more income through taxation is limited, because of the poor state of the economy and manufacturing sector.

The World Bank biannual analysis of the near-term regional macroeconomic outlook indicated that economic growth in Sub-Saharan Africa (SSA) is set to decelerate from 4.1 per cent in 2021 to 3.3 per cent in 2022, a downward revision of 0.3 percentage points since April’s Pulse forecast, mainly as a result of a slowdown in global growth, including flagging demand from China for commodities produced in Africa.

Onyekpere said the budget would only end up pushing the country into bigger debts and debt service costs.

A former Dean Faculty of Agriculture, University of Ilorin, Prof Abiodun Adeloye said if the allocation for agriculture is implemented to drive mechanisation, it will boost economic growth.

He said investing in the agriculture sector would increase productivity and growth, especially if government encourages greater investment in farm infrastructure.

He noted that despite government’s good intention, implementation of the budget will depend on the impact of climate change on agricultural incomes.

According to him, extreme weather patterns can impact farm incomes as farmer’s income could face problems on account of the contemporary realities of agriculture, and the harsher prospects of its vulnerability to long-term climate change.

Director General, Lagos Chamber of Commerce & lndustry (LCCI), Dr Chinyere Almona noted that the overall spending proposal of N20.51 trillion reduces to a non-debt spending proposal of N14.21 trillion once the proposed N6.3 trillion interest payment is deddeducted from the overall spending plan, reducing the adjusted spending plan to N14.21 trillion.

She observed that the proposed revenue of N9.73 trillion does not reflect peak revenue performance of N6 trillion in 2021.

She noted that while nothing is wrong with the N10.78 trillion deficit, everything is wrong with the plan to issue N10.57 trillion -N8.8 trillion in new commercial loans and N1.77 trillion drawdown on bilateral and multilateral loans. According to her, new loans to finance the deficit, at a time that the country is already placed on the watchlists of some of its foreign bondholders, and the world still trying to process president’s well-publicized call for debt cancellation at the last United Nations General Assembly is worrisome.

She lamented that the exclusive use of debt to finance deficits got the country into the situation where it cannot keep the revenue it is earning today, as it uses the bulk of revenue to settle interest payments, and this is increasingly not enough to cover the interest payments.

She commended the strategic objective of the expenditure policy which focuses on macroeconomic stability, human development, food security, improved business environment, energy sufficiency, improving transport infrastructure, and promoting industrialization by focusing on Small and Medium Scale Enterprises.