October 17, (THEWILL) – A nation’s budget should inspire hope and stimulate expectations as it provides the avenue to foster development, boost human capital and raise the people’s standard of living. As a channel for achieving economic growth, it is a tool for decision making that allows the leaders to exercise authority in a manner that makes authoritative allocation of resources meaningful. It is a veritable tool for planning.
In the last six years, since 2016, Nigeria has been operating a national budget that yields less of the dividends of leadership that the instrument provides. Instead, it has remained an exercise in guesswork, under-achievement, low performance and progress in retrogression. It hardly yields the expected results. The budget figures have increased exponentially, without a corresponding evidence of positive performance.
This is why the 2020 Appropriation Bill now undergoing legislative process at the National Assembly is more of a concern than hope. Nigerians express worry on a daily basis that the budget may end up expanding the frontier for profligacy, waste, misplaced priorities and, above all, pushing the country deeper into the miry clay of debt. They are worried that the leadership of the country is determined to maintain its drive on the expressway of Debt Avenue. overlooking the caution and warning signs. Instead, it chooses the direction to go, even when those familiar with the route advise otherwise.
President Muhammadu Buhari presented a budget estimate of N16.39 trillion for the 2022 appropriation year. This represents an increase of 19.7 per cent compared to the budget of 13.6 trillion for 2021. It is the largest in the nation’s history.
The budget has an aggregate revenue of N10.13 trillion. The sum of N3.16 trillion or 34.9 percent is from oil sources with the balance of N6.97 trillion, representing 65.1 percent, from non-oil sources. It has a deficit of N6.25 trillion, which is the equivalent of 3.39 percent of GDP. The debt will be funded by fresh borrowing to the tune of N5 trillion, which will be from both domestic and foreign sources.
This deficit is in excess of three percent of the GDP, which is the threshold indicated by the Fiscal Responsibility Act of 2007. The President explained that we need to spend to resuscitate the economy following the slowdown imposed by the pandemic, provided the expenditure is in areas such as essential infrastructure which has the potential to grow the economy.
Data from the Debt Management Office (DMO) shows that Nigeria’s debt stock as of Jun 30, 2021 was N35.47 trillion. Well-informed opinions have raised the alarm over the nation’s mounting debt stock without corresponding revenue inflow. As a matter of fact, while the debt stock mounts, revenue targets continue to ebb, without an indication that a sliver lining is imminent at the end of the dark tunnel.
STICKING TO CONTRADICTION
The government has stubbornly maintained that revenue, not debt, is the kernel of Nigeria’s fiscal challenge. Despite the facts from credible sources and informed opinions to the contrary, the government refuses to yield.
At the public presentation and breakdown of the highlights of the 2022 Appropriation Bill in Abuja on October 8, 2021, the Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed that the Federal Government spent N2.89 trillion on debt servicing between January and August 2021.
According to the Minister, in the first seven months of the year, total expenditure made by the government stood at N8.14 trillion out of which N2.88 trillion was utilised for debt servicing, N2.75 trillion was spent on overhead cost, while N1.75 trillion was expended on capital projects.
With a debt servicing cost of N2.89 trillion and total revenue of N3.9 trillion, the Federal Government spent about 74 per cent of its revenue on debt servicing within the review period. Zainab said, “For the 2021 performance, between January and August, revenue generated was N3.93 trillion, which was 73 per cent of the prorated target.
With a debt servicing cost of N2.89 trillion and total revenue of N3.9 trillion, the Federal Government spent about N74 per cent of its revenue on debt servicing within the review period Zainab said, “For the 2021 performance, between January and August, revenue generated was N3.93 trillion which was 73 per cent of the prorated target.
President of the African Development Bank Group (AfDB), Dr. Akinwumi Adesina, has cautioned against Nigeria’s mounting debt stock, warning that it must decisively tackle its debt challenges.
Adesina, who spoke at the Mid-Term Ministerial Performance Review Retreat at the Presidential Villa in Abuja this month (October), strongly disagreed with the Federal Government’s view that revenue, not debt, is at the centre of its fiscal challenge, pointing out that debt-service-to revenue ratio of 73 percent was high and unsustainable.
He said, “Nigeria must decisively tackle its debt challenges. The issue is not about debt-to-GDP ratio, as Nigeria’s debt-to-GDP ratio at 35 percent is still moderate. The big issue is how to service the debt and what that means for resources for domestic investments needed to spur faster economic growth
“The debt-service-to revenue ratio of Nigeria is high at 73 percent. Things will improve as oil prices recover, but the situation has revealed the vulnerability of Nigeria’s economy. To have economic resurgence, we need to fix the structure of the economy and address some fundamentals.
“Nigeria’s challenge is revenue concentration, as the oil sector accounts for 75.4 percent of export revenue and 50 percent of all government revenue.”
He further stated that what was needed for sustained growth and economic resurgence is to remove the structural bottlenecks that limit the productivity and the revenue earning potential of the huge non-oil sectors.
“Nigeria should significantly boost productivity and revenues from its non-oil sector, with appropriate fiscal and macroeconomic policies, especially flexible exchange rates that will enhance international competitiveness,” he said .
PAINFUL FLASHBACK
Since 2016, the Nigerian government has not achieved its revenue budgets, while recurrent expenditure is fully executed as a matter of ritual. Based on the 2017 Budget Implementation Report by the Budget Office, for instance, out of N5.084 trillion projection of Federal Government retained revenue, only N2.37 trillion was realised, representing 46.75 percent performance.
On the expenditure side, the combined executed personnel and debt servicing budgets amounting to N3.50 trillion exceeds the overall realised revenue by a whopping N844.88 billion. This implies that Nigeria used borrowed funds amounting to N844.88 billion to pay salaries and service debts. This is part of the overall N2.5 trillion borrowed to fund the 2017 budget (made up of N1.3 trillion from domestic and N1.2 trillion from external markets, respectively).
Further analysis revealed that the overall borrowed sum of N2.5 trillion was more than the net increase in lending to the private sector in 2017 by the deposit money banks. In the final analysis, the government carried a debt burden of N1.3 trillion it could not resolve in 2017. The quagmire arose from the fact that the N2.5 trillion it borrowed from banks to finance the budget was short of clearing the N3.8 trillion arising from expenditure that overshot revenue.
This is an example of Nigeria’s fiscal challenge that has dovetailed into a high debt profile which now consumes about 80 percent of revenue annually for debt servicing. The consequence is that the capital expenditure which should drive the economy through viable infrastructure development is abandoned. This creates negative macroeconomic circumstances such as rise in unemployment, inflation, misery index, insecurity and drop in standard of living.
Former Anambra State Governor, Mr Peter Obi, at a recent webinar organised by the Association of Securities Houses of Nigeria (ASHON) earlier this year, stressed that the government’s borrowings should be targeted at development of the productive base of the economy, rather than supporting or supplementing consumptive tendency.
The limited economic linkage of the huge project compared to the benefit of investing the resources in power generating plants, for instance, can be imagined. A shock in oil price in the international market will result in economic upheaval that will trigger disruption in productive activities, job losses, drop in tax revenue and high inflation; but debt obligations must be met.
The DMO has blamed COVID-19 for the recent rise in government borrowings. Government recently disclosed that it would convert the N10 trillion loans it owes the Central Bank of Nigeria (CBN) into a 30-year bond. The ‘indebtedness’ to the CBN was largely by Ways and Means advances.
CULTURE OF MISAPPLICATION
Of great concern is that the nation’s non-debt recurrent expenditure continues to rise amid declining revenue. Cost of governance shows no signs of abating.
President Buhari had revealed plans to spend as much as N6.83 trillion on non-debt recurrent expenditure, which includes personnel costs and overhead which constitute 41.7 percent of the total 2022 budget. Analysis of the budget revealed that this is also higher than the N5.35 trillion budget for capital expenditure and N3.61 trillion provision for debt service.
Data from the Budget Office showed that Nigeria spent N6.17 trillion more than it earned in 2020 which resulted in a fiscal deficit of 4 percent of GDP – the highest in 21 years.
The alarming rate of waste in our public finance management is unprecedented. The government revenue generating agencies have turned into avenues of waste, mismanagement and outright stealing of public funds. Experts believe there is no way the budget can make a meaningful impact with such an alarming rate of mismanagement.
“NNPC has been making losses. From 2015/16 to 2020, they made accumulated losses of over N800 billion. Now, all of a sudden, in 2020 when the world was on lockdown, it made such a humongous profit. Did NNPC operate in a different world? Look at the balance sheets of other nations’ oil and gas corporations: Saudi Arabia’s Aramco declared over $110 billion profit in 2018. In 2019 they declared $83 billion profit. In 2020, when COVID-19 was ravaging the world, they declared $42 billion profit which is about half of the 2019 figure.
“Look at Petrobras of Brazil, it declared over $10 billion profit in 2019. In 2020, because of COVID-19, it achieved a little over $1 billion.
Similarly, Petronas of Malaysia made a profit of about $21 billion in 2019. In 2020, they made a loss because of COVID-19. Check, Emirate Oil and other nations’ oil and gas firms, there is no corporation or oil and gas industry operator that declared bumper profit in 2020. All of a sudden, NNPC is declaring over 2,000 percent profit. Profit from where? And people are clapping away. What they (NNPC) simply did was move numbers from one place to another. It is financial engineering,” Managing Director/CEO, Taurus Capital & Advisory, Dr Nnaemeka Obiaraeri, told THEWILL.
Commenting further, Obiaraeri said, “Where have you seen a company going into a full limited liability status that will still be creating avenues for losses? If NNPC is like any of the major oil and gas companies, will it still be talking about subsidies, yet carrying refineries that make losses? If you have any entity in your portfolio that is not making profit, you spin it off. NNPC is talking about implementing the PIA in six months’ time and they are not talking about privatising the refineries, they are not talking about removing subsidies. Subsidy has no timeline. I have never seen a country that is so confused.”
An Economist and Visiting Fellow at the London School of Economics, Dr Olu Fasan, blames poor leadership for the poor execution of the nation’s budget, noting that the input of such leaders will not augur well for the economy. He said leadership and the quality of those holding political and public offices in Nigeria is imperative in managing the resources of the country.
“To be honest, the quality of leadership and public-office holding in Nigeria is extremely poor. That’s partly because the right people are not being elected or appointed into public offices and partly because of the lack of accountability and checks and balances. The citizens need to be educated and told about the principle of “garbage-in, garbage-out”, that is, if you elect the wrong people to power, you get the wrong kind of governance.
“Secondly, we need to create the right accountability mechanism and incentive structure that generates good performance from elected and appointed office holders. There must be an effective system of holding people accountable for poor performance and, of course, of rewarding outstanding performance.
“In short, Nigeria needs radical transformation, it needs root-and-branch reform. It won’t make progress unless it is properly restructured,” Fasan told THEWILL.
Commenting on the 2022 budget proposal, renowned Economist and CEO, BIC Consultancy Services, Dr Boniface Chizea, said, “Petroleum subsidy amounted to 714 billion Naira as at the end of August, 2021. The nonfunctional refineries spent 8.33bn during the period up to August, 2021. It is estimated that the total expenditure on the refineries will be up to 66.6 bn. for the year.
“These expenditures are not sustainable against the backdrop of inactivity but it is interesting to note that there has been no provision in budget 2022 for such expenditure heads. Therefore the days ahead portend to be very interesting. The President has promised during his presentation to safeguard revenues from oil and gas; really plug leakages.
“That is a battle which Nigeria has to win if we are desirous of rapid development as it is often proclaimed that corruption fights back if you gear up to take it on.”
Nigeria’s total budget deficit since 2016 has hit N20 trillion.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
