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2022 budget: Capital expenditure suffers setback as recurrent gulps 57% revenue

There are clear indications that infrastructure development will continue to lack behind at the expense of payment of salaries and other recurrent expenditures in the years ahead as the federal government has again failed to measure up to its promise to always set aside a minimum of 30 per cent for capital expenditure with the proposed 2022 budget as close to 60 per cent of expected revenue will be splashed on recurrent expenditure. BAMIDELE FAMOOFO reports.

Out of the N16.4 billion budgeted to be spent in fiscal year 2022, only 26 per cent, about N3.6 trillion is allocated to capital expenditure. The amount is 17.3 per cent less than the provision of N4.13 trillion made for capital projects in 2021.

The provision for capital expenditure (Capex), according to the document presented to the National Assembly by President Muhammadu Buhari on Thursday, is less than the 30 per cent target set by the administration to fast track infrastructure development in Africa’s largest economy. While the allocation to capital expenditure dropped by 17.3 per cent, more money was allotted to recurrent expenditure. According to the budget document compiled by the Federal Ministry of Finance and Budget, a total of N4.79 trillion (inclusive of N750.04billion for GOEs) is provided for personnel and pension costs, representing an increase of N534.40 billion over 2021.

This is 57 per cent of projected aggregate revenues for 2022. The worrisome aspect is that government will depend on more borrowing to finance the budget which largely will be spent to finance recurrent expenses as revenue accruable to the central remains low. In accordance with the 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper, the aggregate federal government revenue available for budget (including GOEs) for fiscal year 2022 is projected at N8.762 trillion, while the aggregate expenditure level is projected at N13.98 trillion (inclusive of GOEs, grants/donor funded projects), creating a deficit of over N5 trillion that must be funded through borrowing.

While some Nigerians and financial experts have cried out about the increasing level of debt of the federal government, the Minister of Finance, Zainab Ahmed, has argued that the nation could still borrow more as she said that total debt at the moment represents 23 per cent of Gross Domestic Product (GDP) of the country.

Earlier, the Director General of the Debt Management Office (DMO), Patience Oniha, aligned with the minister, noting that the country is in the position to borrow more based on debt to GDP ratio. The DMO also argued that the international community still have confidence and trust in the country citing over subscription of the recent $4 billion Euro bond raised by the country, which was allegedly meant to fund infrastructure development in the country. Meanwhile, financial experts have decried the rising recurrent expenditure and debt which have increased under the current administration, warning that government cannot continue to finance debt and recurrent expenses with borrowed funds. “If government must borrow at all, it must be for the purpose of enhancing economy growth and development,” Mr. Marcel Okeke, a Lagos-based economist and financial analyst, told Saturday Telegraph.

The former economic analysts at Zenith Bank warned that increasing debt while revenue to service the debt is not available would spell a disaster for the country. Also speaking, Dr. Boniface Chizea, financial analyst and chief executive officer of BIC Consulting firm, decried a situation where bulk of the revenue accruable to government is being used to service debt and funding expenses that will not contribute to economic growth and development. A sitting governor in one of the South South states had alleged that the government at the centre is in a fix, as he said the revenue shared by the three arms of government on a monthly basis is declining.

His words: “What we got as a state the last time the Federal Account Allocation Committee shared the money was N1.7 billion less than what we got the previous month.” He warned that government revenue may grow worse in the months ahead, as he said the Nigeria National Petroleum Corporation (NNPC), which is the major source of revenue to the FAAC, has threatened to demand for money from the FG to pay for fuel subsidy in the month of October, meaning that it will not remit to the FAAC as expected.

Debt Service

About 41 per cent of the estimated revenue to be generated by the federal government in 2022 has been earmarked to settle debt. The N3.609 trillion in respect of debt service is made up of N2.506 trillion for domestic debt and N1.103 trillion for foreign debt. Additionally, N292.7 billion is provisioned for Sinking Fund to retire maturing loans.

Breakdown

The aggregate expenditure in the 2022 budget document is made up of Statutory Transfers of N613.36 billion, Debt Service of N3.61 trillion, Sinking Fund of N292.71 billion, and Recurrent (non-debt) expenditure of N6.21 trillion. The aggregate amount available for capital expenditures is N3.61 trillion. This represents 26 per cent of total expenditure (short of the 30 per cent target set by the current administration), and is 17.3 per cent less than the 2021 provision of N4.13 trillion. The 2022 provision comprises of N1.76 trillion for MDAs, N366.14 billion capital supplementation, N345.78 billion capital component of statutory transfers, N10 billion capital component of the Special Intervention Programme, N425.02 billion capital budget of GOEs, N62.24 billion for donor/grant funded expenditures and N638.32 billion funded by project-tied loans.

The N1.76 trillion available for MDAs’ capital is N259.32 billion (representing 12.8%) less than the provision for MDAs in the 2021 Appropriation Act. The provision for development expenditure has been constrained by low revenues, increasing personnel and pension, as well as debt service costs. In addition, the continual provision of fuel and electricity subsidies is a major drainer to over all government revenues.

The aggregate sum of N3.261 trillion (excluding capital component of statutory transfers) has been set aside for critical capital expenditure. The thrust of the federal government’s capital expenditure programme in 2022 will be the completion of as many ongoing projects as possible, rather than starting new projects.

In line with this plan, the MDAs have been advised that new projects will not be admitted into the capital budget for 2022, unless adequate provision has been made for completion/work programme of all ongoing projects. Additionally, the FG in furtherance of its inclusiveness agenda intends to sustain the Social Investment Programme (SIP). Accordingly, a total of N350 billion is proposed to be allocated for the recurrent component of the SIP. Details are as follows: N1.759 trillion for MDAs’ capital expenditure; N366.14 billion for Capital Supplementation; N62.24 billion for Grants and donor funded projects; N10 billion for Social Investment Programme, N425.02 billion for GOEs; and N638.32 billion for Multi-lateral and Bi-lateral Project- tied loans.

2021 performance review

As at 30th Jun 2021, FG’s retained revenue was N2.23 trillion (67% of the N3.99 trillion pro-rated budget). The shortfall of 33% is attributable to the underperformance of both oil and some non-oil revenue sources such as the Electronic Money Transfer Levy (EMTL), Recoveries and Fines among others. Based on these, an aggregate to fund the revised 2021 Budget of N14.57trn (inclusive of the supplementary budget).

This implies a deficit of N6.4 trillion (or 4.49% of GDP) which is to be financed mainly by borrowing. The federal government share of oil revenues was N492.44 billion (representing 49 per cent of the prorated sum in the 2021 budget) while non-oil tax revenues totaled N778.18bn (104.5% of prorated target). Companies Income Tax (CIT) and Value Added Tax (VAT) collections were ahead of the budget targets with N397.02 billion and N129 billion, representing 116.5 per cent and 108 Customs collections were N234.02 billion (92.1% of prorated target). Other revenues amounted to N922.02 billion, of which independent revenue was N558.13 billion and EMTL was N7.09bn.

Recoveries and Fines collected during the period are yet to be booked in the fiscal accounts. On the expenditure side, N11.53 trillion was appropriated (excluding GOEs and project-tied loans), while N5.81 trillion (representing 92.4% of the prorated N6.29 trillion) was spent. A total of N2.23 trillion was released for non-debt recurrent expenditure, including Salaries, Pensions and Overheads, while N2.02 trillion was expended on debt service obligations during the period (35% of FG expenditure). As of mid-August 2021, N1.3 trillion (84.7%) had been released for capital expenditure. In effect, a deficit of N3.01 trillion was incurred as at end of May 2021, which is 53.78% of the budgeted deficit for the full year.

 

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