From every indication, the present administration of President Muhammadu Buhari would be leaving huge debts for its successor after it leaves office in 2023 with another N11 trillion borrowing plan for the 2023 fiscal year.
The minister of finance, budget and national planning, Mrs Zainab Ahmed yesterday revealed that the federal government may not be able fund capital projects in the 2023 fiscal year unless it borrows more than N11 trillion.
The minister, who said that the budget deficit for the 2023 fiscal year may run between N11.30 trillion to N12.41 trillion, noted that the government's decision to continue payment of petrol subsidy will largely affect the projection.
The country's total debt currently stands at N41.6 trillion. With the new borrowing for 2023, the total debt will stand at about N52 trillion at the time the administration will hand over to the next president on May 29, 2023.
The minister, while presenting the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper before the House of Representatives Committee on Finance, put the aggregate expenditure of the government for 2023 at N19.76 trillion.
This is as stakeholders fear the economy is on the verge of bankruptcy due to the deepening of the debt crisis.
Ahmed said crude oil production challenges and PMS subsidy deductions by the NNPC constitute a significant threat to the achievement of the nation's revenue growth targets, adding that bold, decisive and urgent action is urgently required to address revenue underperformance and expenditure efficiency at national and sub national levels.
She said, "In this scenario, the budget deficit is projected to be N11.30 trillion in 2023, up from N7.35 trillion in 2022. This represents 5.01 percent of the estimated GDP, above the 3 percent threshold stipulated in the Fiscal Responsibility Act, 2007."
Giving an overview of government revenue, she gave two scenarios, saying under the first scenario, federal government revenue for 2023 is N6.34 trillion, out of which only N373.17 billion is expected from oil related revenue, with the balance of N5.97 to come from non-oil sources.
On the second scenario two she said, "In addition to subsidy reform, this scenario assumes an aggregate implementation of cost to income limit of government-owned companies. With these, the 2023 FGN revenue is projected at N8.46 trillion, out of which N.99 trillion or 23 percent is projected to come from oil revenue sources."
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On the key assumption on which the 2023 budget will be based, the Minister said oil benchmark for 2023 is estimated at $70 per barrel, with an oil production benchmark of 1.69 million litres per day and an exchange rate of N435.02 to $1, while inflation is expected to grow at 17.16 percent.
She said further that GDP is expected to grow at 3.75 percent, while an upward pressure on prices is expected to be driven by the current and lag effect of the global price surge due to the Russia-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation as well as other supply side constraints.
She also said that the key parameters as well as other macroeconomic projections driving the medium-term revenue and expenditure framework have been revised in line with the emergent realities.
While presenting two scenarios on revenue from oil and gas sources as well subsidy, the Minister also presented two scenario which she said has been presented before the Federal Executive.
She explained that scenario is the business as usual scenario which assumes that subsidy on PMS estimated at N6.7 trillion for full year 2023 will remain and be fully provided for, while scenario two, which is the reform scenario, assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case, only N3.6 trillion will be provided for.
She said revenue generation remains the major fiscal constraint of the federation, stressing that the systemic resource mobilization problem has been compounded by recent economic recessions.
While responding to questions from the lawmakers, the Minister said, "From what has happened in 2022, clearly what we are spending is not giving us much value because production continues to decline and what this means is whatever we are doing is not working and therefore we have to do something totally different."
On money spent on pipeline security, she said "my understanding is that security agencies and the national oil company as well as the regulators have been working very hard to find solutions and what they tell us is that they are beginning to see improvement.
"Oil production in April was 1.3 million barrels per day and by July it was 1.4 million. We do hope that the increase will be very significant because it's costing us, not just N3.2 billion in terms of security cost, but the revenue we have earned."
"At 39 percent the oil and gas revenue as of April is at very low performance. We need to move oil and gas revenue to the threshold.
"In the MTEF for 2023 to 2025, we had removed the federation spending on pipeline security, assuming that with the transition of NNPC to NNPC limited, they will be carrying that cost directly, not the federation."
According to her, the Petroleum Industry Act has given the NNPC some independence from the federation, and that as a registered company, it has to perform in line with the laws of the Company and Allied Matters Act (CAMA).
"A lot of the expenditure the federation used to carry will now be carried by NNPC Limited. NNPC will be paying taxes and dividends and we believe in the medium term, the federation will end up earning more revenue.
"It also means that the NNPC will need to go and borrow money on its own. That will improve the efficiency of the company. They have to pay dividends and royalties to the federation which they were not doing before."
Reacting to the MTEF proposals, former director general of LCCI and CEO of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said the new borrowing proposal would worsen an already bad debt situation.
Yusuf noted that "already debt service has exceeded government revenue going by the financial report of the federal government as of April this year. We are already at a debt threshold that is not sustainable.
"The economy is on the verge of bankruptcy. The deepening of the debt crisis could crystallise the bankruptcy risk. Elevated debt burden should be avoided as much as possible."
He added that "when we take account of borrowings from the Central Bank of Nigeria (CBN) and the stock of Asset Management Corporation of Nigeria (AMCON) debt, the debt profile would be in excess of N70 trillion by the end of 2023.
"Government's actual revenue can hardly cover the debt service obligations, which implies that the entire capital budget, recurrent expenditure and part of the debt service, would have to be funded from borrowing. This is surely not sustainable. It is a looming debt trap."
He explained that what is needed is the political will to cut expenditure and undertake reforms that could scale down the size of government, reduce governance cost and ease the fiscal burden on government.
"The naughty issue of fuel subsidy needs to be addressed. We have to take steps to gradually exit from the subsidy regime if we do not want the economy to collapse.
"Additionally, it is imperative for the country to operate as a true federation which it claims to be. The unitary character of the country is making it difficult to unlock the economic potential of the sub-nationals. It is perpetuating the culture of dependence on the federal government.
"We need to address the fuel subsidy conundrum at some point as it is clearly not sustainable," he said.
Also, professor of Economics at University of Ibadan, Olanrewaju Olaniyan said the problem is that the federal government does not have the ability to cut costs; it keeps spending, including spending on things that are not quite necessary.
Nigeria has been grappling with a revenue problem. The major source of its foreign exchange is oil export. To make issues worse, Nigeria has not been able to meet its OPEC allocated daily crude oil quota production in about two years period.
The sector is faced with so much crude oil theft, while the authorities fail to make existing refineries work for domestic refining of crude. The country already has a double digit inflation figure as refined petrol sells for between N174 and N220 per litre above the official rate of 165/litre.
Nigeria's foreign exchange reserve is drying up because of poor forex earnings from oil that is spent on scandalous fuel subsidies through the back door.
"We do not have a revenue problem. What we have is inability to reap our revenue. Because the government has not demonstrated enough capacity to either curb corruption or theft in the oil sector," Professor Olaniyan said.
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According to him, the fiscal deficit would continue to soar as long as the government fails to creatively enhance revenue generation by reducing official corruption, curbing oil theft and dealing with insecurity that has adversely manacled economic activities across board. .
The implication of the new borrowing would be dependent on what form that is adopted by the fiscal authorities to borrow the said amount.
Olaniyan said should the government choose to raise the money through the Central Bank of Nigeria through ways-and-means, it would not be backed by production.
"The implication of that is that the current inflation figure will further increase again," he stated. However, "If you borrow from the domestic market, you will pump the money back into the economy," a step he said is good for production and job creation. On the other hand, Olaniyan said borrowing from the foreign market would also be good in that it would help to build the foreign exchange reserve of the central bank.
"The truth of the matter is that we are not able to generate enough revenue for production. And it's not good for the economy," the university don stated.
Head, Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, noted that the plan to extensively increase borrowing is not surprising, as the government revenue is on the decline while expenditure is on the rise.
"If you look at the government revenue, we are losing so much revenue because a lot of the crude oil is stolen and we know that that is where the main source of revenue is.
"On the expenditure side, with this subsidy that we want to have in place, it is obvious that next year, with the election funding and the plan to also have a census next year, that means that we will be spending a lot in 2023.
"The federal government is also trying to rush up some projects so that they can use it as a legacy. So, expenditure is going to be very high and revenue is going down. Look at how much was passed for this year, about N4 trillion was passed in the budget for subsidy alone and next year will turn out to be more. So it is not surprising."
