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2023 budget: Borrowing, consumption, no capital projects, bad planning –Experts

…as govt’ll fund subsidy, salaries, others with loans

 

In this report by PAUL OGBUOKIRI economists ex-ray government’s plan for zero allocation to capital projects in the N19.76 trillion which would be financed by over N11 trillion loans

 

As Nigeria prepares for general elections next year that promise to be one of the most keenly contested in its history, evidence is emerging that the economy faces a double whammy: an empty treasury and rapid decline.

 

This is coming as the Minister of Finance, Mrs. Zainab Ahmed had disclosed while defending the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) before the House of Representatives recently that the government’s budget deficit is expected to exceed N12.42 trillion and it would not make any provision for capital development in the budget.

 

According to experts, the simple explanation estimated aggregate expenditure for 2023 which the Minister put at N19.76 trillion will be wholly recurrent expenditure (consumption and debt servicing).

 

They decried the proposed spending appropriation plan, saying it will not only worsen the already degraded living condition of the common Nigerians but will further weaken the productive capacity of the country, which is so much needed at this time to generate revenue to service the nation’s humongous debt.

 

N8.52trn appropriated for staff salaries, zero for capital

Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed, had disclosed that of N19.76 trillion to be proposed in the 2023 budget, the Federal Government would not be able to allocate funds for capital projects in the nation’s budget for the 2023 fiscal year.

Addressing the House of Representatives Committee on Finance, the Minister also said that the budget deficit for the 2023 fiscal year may be between N11.30 trillion and N12.41 trillion, depending on some fiscal policy decisions on subsidy payment for petrol.

While presenting the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) before the committee, according to the Minister, crude oil production challenges and PMS subsidy deductions by the NNPC have been a great impediment to the achievement of the country’s revenue growth targets, adding that bold, decisive and urgent action is needed.

She said there were no projections that Nigeria would default on her debt services in the nearest future.

While the amount currently used in debt servicing had overshot appropriation in the 2022 budget, she said systems are put in place to manage the situation.

“We planned that 60 per cent of revenue would be spent on debt servicing, but in some months, the ratio went up to 90 per cent,” she said.

The decision not to make provision for the capital component of the budget is due to the dwindling revenue of the Federal Government as well as growing debts. The lawmakers, who have been interacting with Ministries, Departments and Agencies (MDAs) on the 2023-2025 MTEF were skeptical of having a zero capital budget in a transition year.

The Chairman of the House Committee on Finance, Hon. James Faleke, expressed concern that there will be a general election in 2023 and a new president is expected to emerge with new  loansnational and state assemblies, hence handing over such a budget to a new team may not augur well for the incoming executives and legislators.

Human Rights Writers Association of Nigeria (HURIWA) condemned the government for failing to make provisions for treasury-funded capital projects in the proposed 2023 appropriation.

The association regretted that despite the humongous debts the government would incur to fund expenditure in next year’s budget, no provision was made for capital projects.

HURIWA’s National Coordinator, Emmanuel Onwubiko, said the government must not just increase the cost of governance at the detriment of the social wellbeing and security of the citizens, but embark on projects that would have a positive impact on the lives of the people. It further said that the 2023 budget will be devoted completely for the wellbeing of the government and its functionaries while the over 200 million Nigerians get nothing in terms of service.

Onwubiko said: “It is perplexing that there is no break to the borrowing spree embarked upon by the regime of President Muhammadu Buhari since 2015.

 

“It is more astonishing that the nation can go a whole year with no capital projects despite that this government keeps ballooning recurrent expenditures and increasing costs of governance at the detriment of the social wellbeing and security of the citizens, which is the primary duty of government in the ground norm.

“The 2023 budget projection of the government is not acceptable. We call for amendments to reflect the popular will of the people, especially to reinforce the fight against insecurity, reduce costs of governance, increase social welfare for the disadvantaged, battle systemic corruption at its peak within government circles at all levels and build up the badly destroyed strategic sectors of roads, schools and hospitals.”

Meanwhile, Sunday Telegraph learnt that the Federal Government is looking at spending over N8.5 trillion on recurrent expenditure in 2023.

This is N1.4 billion more than the N7.10 trillion planned in the amended 2022 Budget framework.

The Ministry of Finance revealed this in its circular to heads of Ministries, Departments & Agencies (MDA’s).

The breakdown shows personnel costs for MDAs will gulp over N4.54 trillion, while N779.billion will be for personnel costs for Government Officials (GOEs).

 

Pensions, Gratuities & Retirees Benefits is projected to cost the government N827.86 billion, and Service Wide Votes N1 trillion, among others.

 

Again, the Presidential Amnesty Programme will gulp N65 billion just as TETFUND would take N12.4 billion.

The circular also revealed that N14.22 billion has been projected to be spent by the presidency in 2023.

Fiscal challenges

According to Dr. Ezinne Ukagwu, economist and director of the Iroto Rural Development Centre, a women’s capacity building centre in Ogun State, it is no longer news that the Nigerian government had been borrowing from everywhere, including borrowing from itself (the Central Bank), to meet its needs which for a long time have been more than the revenue, but what is shocking is the report that the authorities are considering devoting making the “2023 budget a budget of consumption, no dime to capital”!

“This will worsen the already bad situation because the government has been borrowing from the Central Bank, which to me is like borrowing from yourself to finance its project. This will further widen the fiscal challenge the country is facing currently.”

According to her, Nigeria is already facing serious fiscal problems, with its rising budget deficit, debt and shrinking revenue.

In July, it was reported how the country’s fiscal position worsened in the first four months of the year as the cost of repaying debt surpassed the government’s revenue in the first quarter of 2022.

According to details of the 2022 fiscal performance report for January through April, Nigeria’s total revenue stood at N1.63 trillion while debt servicing stood at N1.94 trillion, showing a variance of over N300 billion.

Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, warned that urgent action was needed to address the nation’s revenue challenge and expenditure efficiency at both the national and sub-national levels.

The report showed that gross oil and gas federation revenue for the first four months of the year was projected at N3.12 trillion but as at April 30, only N1.23 trillion was realised, representing a mere 39 per cent performance. Despite higher oil prices, the report showed that oil revenue underperformed due to significant oil production shortfalls such as shut-ins resulting from pipeline vandalism and crude oil theft as well as high petrol subsidy cost due to higher landing costs of imported products.

Further analysis of the nation’s fiscal performance showed that deficit spending shot up to N3.09 trillion in the first quarter of 2022 as pro rata spending target for the period was N5.77 trillion, while the actual spending as of April 31 was N4.72 trillion.

On the other hand, as of April 2022, the nation’s retained revenue was only N1.63 trillion, 49 per cent of the pro rata target of N3.32 trillion, putting the deficit between actual spending and revenues at N3.09 trillion.

In effect, the government borrowed to cover the deficit.

A breakdown of the government’s actual spending within the period showed that N1.94 trillion was for debt service, N1.26 trillion for personnel costs, including pensions, while a meagre N773.63 billion was spent on capital expenditure. In 2023, the no kobo is expected to go capital expenditure

Borrowing to finance consumption not sustainable

According to the Debt Management Office (DMO), as at the first quarter of the year, the debt of the country stood at N41.6 trillion.

Before the year runs out, Nigeria is expected to have added to it and by 2023; FG alone is expected to add N11.03 trillion to the profile.

Dr Adesanya Moses, an Economist at the Nigerian Army University, Biu, said any borrowing that is not going into financing the capital component of the budget is not sustainable.

“If they keep borrowing not for capital projects, then it is not sustainable because part of it will go into recurrent expenditures and debt servicing. It will be more efficient if the investment can repay the loans— it is what we call derived demand.

 

When you spend money on capital projects, it will help the economy to grow.

“The problem is that borrowing to finance subsidies is not sustainable because the vast majority of the subsidy goes to the high and middle income earners. It is not creating jobs or improving the life of the people. Borrowing to finance subsidies is not sustainable,” he said.

While this is going to be President Buhari’s last budget, a large part of it will be implemented by another administration, hence, whoever emerges as the president in 2023, will inherit a huge budget built on borrowing.

Samuel Atiku, a governance expert and Senior Programme Officer for International Budget Partnership, says that Nigeria government is doing expansionary policy. That is why the government is spending more than its revenue, adding that it is the reason for the heavy debt the country owes.

“The government has been running this expansionary fiscal policy, essentially spending heavily in anticipation that the more it puts into the economy, it will inflate the economy into growth.

“You cannot rescue an economy by riotous borrowing and consumption-induced deficits. There must be a realistic recovery plan. Government must drastically cut costs and reduce the bureaucracy.”

But Atiku pointed out that the Nigerian economy “is not strong enough to raise money for the government to do this kind of spending. Therefore, the government has to borrow from outside the country.

Impact on economy

According to him, if it is an ordinary person or business that is passing through what Nigeria is passing through, it will be said to have gone bankrupt, but as a country, “Nigeria is going concern” which has the power to print as much money as it likes.

“The implication is that this money is printed for the government’s expansionary policy, which continues to drive down the value of the naira. It is worse in a situation where the borrowing is for consumption as the huge deficit will mainly be financed through domestic borrowing, mainly from the Central Bank (printing of currency). The impact will be more on the poor masses as quality of life will drop. Society will fall apart and people will either go into the streets to protest or the rate of kidnapping will increase and crime will increase as we are seeing in Nigeria today,” Atiku said.

 

 

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