INTERROGATING KEY PROVISIONS OF FGN’S 2023 “BUDGET OF FISCAL SUSTAINABILITY AND TRANSITION”

The unhealthy situation is worsened by the failure of officialdom to come to full grips with the observed reality which, unfortunately, is compounded by several internal forces undermining the revenue generation potential of the economy through oil theft, pipeline vandalism and grand corruption.

ADEREMI MEDUPIN

Budgets and their importance

In modern times, public budgets, being the outline of how public resources are generated and expended against the backdrop of their relative scarcity, constitute the most potent instrument of economic coordination and planning by governments annually. Increasingly, the quality of budgets is judged on key criteria of transparency, accountability and participation all aimed at ensuring that public resources are utilized efficiently and effectively in meeting the needs of the citizens and residents of the geopolitical space for which the budget is packaged. In interrogating the 2023 federal government budget provisions, the logical starting point is its underlying assumptions; but first, its context.

The Nigerian economy is currently faced with widely shared indices of rising prices of basic goods and services-which Africa Insight dubbed “the high rate of inflation and the cost of living crisis”-compounded by sluggish economic growth manifesting in high unemployment, especially among the youthful population and rising public debt. Upfront, we need to take on board the fact that the highlighted macroeconomic features are largely of global experience resulting from a combination of diverse forces of both internal and external sources-as the global economy slows down. Of course, there are national peculiarities defined by resource base and managerial competence of leadership in constant interface with the dominant political culture of the followership.

FGN Budget 2023 assumptions compared to 2022

The key assumptions of the FGN Budgets 2022 and 2023 are the following:

As displayed, the key macroeconomic indices as projected in the budget can only assume concrete meaning when considered in terms of their realism which can be measured at two interrelated levels: i) their context as defined by the status of the economy; and ii) the outcomes of previous year’s projections. As at the day the 2023 budget provisions were being presented before the National Assembly, the price of crude oil in the international market stood at $88.31 per barrel, thus the $70 in the budget leaves some room for maneuver, whichever way the price turns-downwards or upwards, the latter allowing for excretion into the sovereign wealth fund. There is the challenge in the oil and gas sector fueled by theft and vandalism to the point that the country has consistently failed to meet its supply allocation by OPEC. Although the projected GDP growth rate of 3.75 percent looks realistic, what is actually needed to address the macroeconomic challenges on ground is much higher. As to the foreign exchange scene, the persistent divergence between official and market rates makes effective ridicule of whatever figure the government puts across. A similar summary can be extended to inflation which, to the average Nigerian, is perhaps the most direct channel the economy impacts on their lives negatively.

Key provisions and their implications

The 2023 budget broadly provides for an expected revenue of ₦9.73 trillion, aggregate projected expenditure of ₦20.5 trillion thus giving a deficit of ₦10.8trillion. When compared to the 2022 Budget, it shows a 4% decline in expected revenue and 25% increase in proposed expenditure. The government plans to generate only N8.5 trillion, out of the N19.47 trillion budget. To finance the budget, the federal government plans to borrow N11.03 trillion-of which N7.4 trillion will be from the domestic market while also tapping into foreign sources. In addition, N206.1 billion is expected from privatization proceeds and N1.7 trillion multilateral project-tied loans. In this vein, some national assets across the country have been earmarked for sale; indeed, earlier in the year, the Bureau of Public Enterprises (BPE) had announced the sale or concession of 42 such national patrimony, including the Aluminum Smelter Company of Nigeria (ALSCON) several Power Plants (NIPP), Nigerian Film Corporation, Abuja International Conference Centre, etc.

A breakdown of the more specific provisions of the budget gives the following highlights:

• Total revenue stands at just N73 trillion- of which oil revenue is projected at N1.92 trillion, Non-oil taxes estimated at N2.43 trillion, independent revenues stand at N2.21 trillion. Other revenues total N762 billion while the retained revenues of the 63 Government-Owned Enterprises (GOEs) amount to N2.42 trillion. In other words, Government-Owned Enterprises will spend N2.42 trillion

On the side of expenditure:

• Capital expenditure takes 26% of total-amounting to N3 trillion- including the capital component of Statutory Transfers;
• Statutory Transfers of N11 billion;
• Non-debt Recurrent Costs of N27 trillion;
• Personnel Costs of N99 trillion; Pensions,
• Gratuities and Retirees’ Benefits of N8 billion;
• Overheads of N11 trillion;
• Debt Service of N31 trillion; and
• Sinking Fund of N73 billion to retire certain maturing bonds

It is clear from the foregoing that the proportion of the total budgetary allocation is skewed against capital heads which is a pointer to poor future development prospects given the critical role of capital projects in accelerating overall economic growth. Where, as things are, the bulk of government spending goes to recurrent items, it is only a short route to economic stagnation. Of course, it must be acknowledged that the fiscal crisis of the state did not just start, the rising trend of recurrent spending has merely been continued and heightened. The underlying challenge of low revenue generation in the face of rising public expenditure and the subsequent fiscal deficit leading to borrowing of doubtful sustainability is an inevitable outcome.

Interface with the global economy

In his budget presentation address to the National Assembly, the President made the point that:

The 2023 Budget was prepared amidst a very challenging world economy that is weakened by the lingering effects of the COVID-19 pandemic, high inflation, high crude oil prices resulting in huge costs of PMS subsidy and negative effects of the Russian-Ukraine war

It is obvious from the above that no abiding examination of a country’s budget in our era of hydra-headed, now full blown globalization can be undertaken without explicit reference to its embracing external context. To start with and as an illustration, the fate of the country’s earnings from oil which serves as the bedrock of its revenue, being by definition, a mono-culture economy, shows its dependency within the international economic system. The importance of the implication of this mono culture status registers in the fragility of the source especially with the increasing rate of oil theft and pipeline vandalism.

Projecting Budget Performance

Going by the estimation of the World Bank-in its recent Poverty and Shared Prosperity 2022 Report, “Nigeria needs 9% GDP growth rate annually to beat extreme poverty”. This expectation is obviously beyond realization in the present circumstance of the economy; hence, the modest projection of less than 4% in the government budget. Ultimately, the most objective basis for judging the performance of the budget in focus, apart from the short-term objectives outlined in the proposals, should be the national priority objectives of the National Development Plan (NDP 2021- 25), as restated in the 2023 Budget Call Circular, namely:

1. a) Establishing a strong foundation for a diversified economy;
2. b) Investing in critical physical, financial, digital, and innovation infrastructure;
3. c) Building a solid framework and enhancing capacities to strengthen security and ensure good governance; and
4. d) Enabling a vibrant, educated, and healthy populace.

Going by the long list of infrastructural projects on the plate of the Buhari-led administration, it can be said of it that commendable efforts have actually been made to create a strong base for the economy; the snag and weakness of the model, however, is that it is operated within a constraining paradigm. Whereas the policy of economic diversification has its own appeal, it suffers the handicap of promoting more of the same as it hardly ventures boldly outside of agriculture; meanwhile, what is called for given the economy’s historical status and fortunes, is a model and paradigm of economic transformation involving the radical overhaul of the extant system of production and distribution.

Thorny Issues

A number of issues register for attention because, taken together, their appreciation will go a long way in helping our understanding of the real prospects of the budget success or otherwise; the issues include fiscal deficits, debt service, capital projects and fuel subsidy.

1. Fiscal Deficits

Like preceding years, this budget is projected to carry a huge deficit, specifically N10.78 trillion. As the President noted, “This represents 4.78 percent of estimated GDP, above the 3 percent threshold set by the Fiscal Responsibility Act 2007”. We recall that Section 12 (1) of the FRA states: “Aggregate expenditure and the aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three per cent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly for each financial year.” (Emphasis added by me-AM). What this reveals is that the government is not living by the very fiscal rule it set for itself, which in academic parlance falls under ‘fiscal indiscipline’ even as it is rationalized on the ground of “security challenges facing the country”. This leaves one wondering what to make of the President’s assertion that: “To ensure fiscal sustainability, we will further improve our business-enabling environment, accelerate current revenue-based fiscal consolidation efforts and strengthen our expenditure and debt management. “

1. Debt Service obligation

The country’s total public debt stock as at end of June 2022 stood at N42.8 trillion. By the budget provision, the FGN plans to spend N6.31 trillion in the fiscal year 2023 as interest payments on her more than N41 trillion debt stock composed of N3.295 trillion for Domestic Debt, N1.20 trillion for service on ways & means and N1.814 trillion for Foreign Debt. This is significantly higher than the N3.69 trillion budgeted for in the fiscal year 2022. The increasing debt service obligation inevitably translates to lower fiscal space for development spending and now the suspension of capital projects and constraint in the provisions of social amenities. As a commentator captured the scenario, “borrowing has become main source of funding Buhari’s budgets”. Put bluntly, Nigeria has fallen into a debt trap. Incidentally, the President is not alarmed by the rising public debt. In his Speech, he maintained the position that: “Our debt position remains within cautious and acceptable limits compared to peer countries”, but he acknowledged the fact that, “our debt-service-to-revenue ratio needs close attention” as it is indicative of poor revenue collection with revenue to GDP ratio hovering around just 8% as against the desired 15%.

 Fate of Capital Projects

The thrust of the FGN’s capital expenditure programme in 2023 will be the completion of as many ongoing projects as possible, rather than starting new projects. No new projects from Ministries, Departments and Agencies (MDAs) will be admitted into the capital budget for 2023 unless adequate provision has been made for the completion/work programme of ALL ongoing projects. What this translates to in effect, is the fulfillment of the Finance Minister’s earlier warning during the presentation of the budget-preceding Medium Term Expenditure Framework (MTEF) 2023-2025, that there may be no funding of capital projects in the year’s budget. Meanwhile, studies have shown that capital spending has significant positive effect on economic growth especially in the long run, touching on the all-important imperative of sustainability.

1. Fuel Subsidy

The magnitude of government expenditure on Premium Motor Spirit (PMS) subsidy can be seen in the fact that it consumed N3.92 trillion from January 2020 to June 2022 which is higher than the cumulative individual federal budgets for health, education and defense during the 30-month period. The fuel subsidy regime is justifiably suspected in informed quarters as a fraud. This is not to write off subsidy as necessarily an economic waste, the problem is how it is implemented. In economics, the idea of subsidy is conceived as a policy of underwriting the cost of production for economic agents in the interest of wider constituencies usually to improve social welfare. However, in the Nigerian fuel subsidy implementation, whatever welfare gain it may have brought goes more to those not in need of it, apart from shortchanging the government by reducing what goes into the federation account. Not surprising, the Petroleum Industry Act, 2021 has provided for a halt to the scheme and was recently echoed by the Director General of the Budget Office.

It is pertinent to highlight an irony spawned by the fuel subsidy regime as a rise in oil price in the international market practically penalizes Nigerians as their government ends up paying bigger sums on subsidy that squeeze the public purse. Specifically, as confirmed by the President, “the sum of N1.59 trillion was spent on fuel subsidy between January and June 2022”. However, experts have argued that the largest share of the subsidy goes to the high and middle income earners. An online publication, The Conversation, of November 4, 2021, put it this way: “Fuel subsidies in Nigeria: they’re bad for the economy, but the lifeblood of politicians”.

 Parting shot

The most enduring characteristic of the Nigerian economy is its dependency status on a weak neocolonial structure within a highly constraining policy environment defined by the global economic order skewed in favour of the advanced economies to the disadvantage of their developing and relatively poor counterparts. The unhealthy situation is worsened by the failure of officialdom to come to full grips with the observed reality which, unfortunately, is compounded by several internal forces undermining the revenue generation potential of the economy through oil theft, pipeline vandalism and grand corruption. This is precisely why the ability of the 2023 budgetary provisions to address key macroeconomic challenges facing Nigeria currently becomes suspicious. I come in peace, please.