PHILIP NYAM reports that the House of Representatives wants revenue leakages to be plugged as the Federal Government may not make provision for capital budgets in the 2023 fiscal year
The Minister of Finance, Budget and National Planning, Zainab Ahmed, recently told the House of Representatives Committee on Finance that the Federal Government is proposing an aggregate expenditure of N19.76 trillion in the 2023 fiscal year.
She, however, hinted that there may not be any provision for treasury funded capital projects next year. Ahmed made this known while presenting the draft 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) before the committee led by Hon. James Faleke (APC, Lagos).
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.
There will be a general election in 2023 and a new president is expected to emerge with new national and state assemblies hence handing over such a budget to a new team may not augur well for the incoming executives and legislators.
Reacting to the minister’s disclosure, the chairman of the House Committee on Finance, Faleke, said the prevailing financial situation in the country requires that all revenue sources be explored as the government was short of revenue. He stressed that it was obvious that when there is no revenue, every aspect of the country suffers and asked all agencies appearing before the committee to provide the committee with the correct position of their revenue.
He warned that no agency of government would be allowed to play with revenue of the country. The committee also accused the office of the Accountant General of the Federation of failure to adequately track revenue generated by agencies of government and to keep adequate records of such revenue.
Mrs. Ahmed, while giving details on the key assumptions of the proposed 2023 budget, explained that the oil benchmark is estimated at $70 per barrel, with an oil production benchmark of 1.69 million barrel per day and an exchange rate of N435.02 to the dollar, while inflation is expected to grow at 17.16 per cent.
According to her, Gross Domestic Product (GDP) is expected to grow at 3.75 per cent, while 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 said that growth in nominal consumption has been adjusted in line with revised estimates based on changes in the components of GDP and historical performances, stressing that medium-term nominal consumption is projected at N121.93 trillion in 2023.
The minister noted that investments, especially from foreign sources are expected to be dragged down by interest rate hikes in advanced economies, foreign exchange management concerns and other domestic challenges, including insecurity. 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.
“The medium-term projections deviate from the projections in the National Development Plan (2021-2025). They have been updated based on a combination of current realities and a modified medium-term outlook. For instance, inflation and growth in the NDP are projected at 14.93 per cent and 4.39 per cent, respectively for 2023,” she stated.
The minister further told the lawmakers that the budget deficit for the 2023 fiscal year may run between N11.30 trillion and N12.41 trillion depending on the choice of scenario that will be adopted by the government on whether to remove or continue with subsidy payment on Premium Motor Spirit (PMS). She said scenario one is the “business- as-usual scenario:
This assumes that the subsidy on PMS, estimated at N6.72trillion for the full year 2023, will remain and be fully provided for. “Scenario two – the reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case, only N3.36 trillion will be provided for.
“Additionally, there will be tighter enforcement of the performance management framework for GOEs that will significantly increase operating surplus/dividend remittances in 2023. Both scenarios have implications for net accretion to the Federation Account and projected deficit levels,” Ahmed explained.
She said crude oil production challenges and PMS subsidy deductions by the Nigerian National Petroleum Corporation (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. “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,” she said. In scenario one, she explained that “given the severely constrained fiscal space, the budget deficit is projected to be N12.41 trillion in 2023, up from N7.35 trillion budgeted in 2022, representing 196 per cent of total government revenue or 5.50 per cent of the estimated GDP.
“This is significantly above the three per cent threshold stipulated in the Fiscal Responsibility Act 2007 and there will be no provision for treasury funded MDA’s capital projects in 2023.”
Also, giving an overview of government revenue, the minister presented two scenarios, saying under the first scenario, Federal Government revenue for 2023 at N6.34 trillion, out of which only N373.17 billion is expected from oil-related revenue, while the balance of N5.97 will come from non-oil sources.
On 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 Federal Government revenue is projected at N8.46 trillion out of which N.99 trillion or 23 percent is projected to come from oil revenue sources.” 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.
On a question posed by the lawmakers as to whether the government’s spending were yielding any value, the minister responded that “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 the huge sums of money being expended on securing pipelines, she explained that “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 costs, but the revenue we have earned. “At 39 per cent, the oil and gas revenue as at 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.
“The Petroleum Industry Act has given the NNPC some independence from the federation. And also as a registered company now under the Company and Allied Matters Act (CAMA), they have to perform in line with the laws of 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 paid dividends and royalties to the federation which they were not doing before.
“On production, we are projecting 1.69 million barrels per day based on the projection of NNPC. They are projecting that all the measures taken now are going to result in increased production and we hope it works out. If it doesn’t the deficit situation we found ourselves in will even be worse. Responding to a question on the Morocco/Nigeria gas pipeline by Hon. Sada Soli (APC, Katsina), the minister said the Federal Executive Council has just approved funding for the feasibility study and nothing much had been done.
“The Federal Executive Council a few weeks ago approved funding for the feasibility study, which means that it’s still at the feasibility study phase. The National oil company can provide the details,” she stated. Following the minister’s presentation, the question being asked by experts is: How can a nation that is suffering infrastructure deficit afford to execute a zero capital budget in an election year.