Economy still resilient amid challenges

Facing a low revenue stream on all fronts, the Federal Government has managed to keep pace with her key obligations on the expenditure side in mid year reports ABDULWAHAB ISA

Notwithstanding the bruises inflicted on the economy by COVID-19 from last year, Nigeria’s economy has remained resilient in 2021. Disclosures on disbursements to key projects, current expenditures and government revenue streams attest to this. Mid-year stock-taking of government’s expenditure and revenue disbursements (from January till may, 2021) and a peep into government’s Medium-Term Expenditure Framework/Fiscal Strategy Paper (MTEF/FSP) for 2022 – 2024 is a benchmark for assessing the economy amidst global challenges. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, two weeks ago, presented an economic scorecard for half year 2021(January to May). The occasion was the public presentation of citizen’s guide for 2022- 2024 Medium- Term Expenditure Framework/ Fiscal Strategy Paper (MTEF/FSP). MTEF/SSP is a draft document, which provides an overview of a new budget. Before delving into her presentation, which had in attendance top government officials, media and members of the civil society organisations, Ahmed presented an overview of the 2021 budget performance.

Mid-term score card

Recall President Muhammadu Buhari signed the 2021 appropriation bill of N13.588 trillion into law on December 31, 2020. The timeliness of the president’s assent to the Appropriation Act was in line with the administration’s doctrine of keeping faith with the January to December budget cycle. Also of note was the economic headwinds of 2020. It was significantly characterised by COVID-19, which maximally led to a decline in crude oil price. Crude oil price dropped from a peak of $72.2 pb on January 7, 2020 to below $20 pb in April, 2020. Most nations’ economies, including Nigeria, entered into recession in the wake of the pandemic. The 2020 headwinds dovetailed into 2021. However, on the back of huge reflation and spur of activities, the economy sustained a tepid recovery in the first quarter of 2021, posting a year-on-year (YoY) GDP growth of 0.51 per cent, consolidating the exit from recession in Q4’20. It reflected easing of COVID-19-induced restrictions. The economy recovered from recession. Giving insights into government disbursements (expenditure performance) between January and may 2021, the minister said N4.86 trillion (representing 92.7 per cent of the prorated budget) had been spent. The sum, she said, excluded GOEs’ and project-tied debt expenditures. Of the expenditure, she said N1.80 trillion was for debt service (37 per cent of FGN expenditures); and N1.50 trillion for personnel costs, including pensions (31 per cent of FGN revenues). On the capital component, she said as of May 2021, N973.13 billion had been released for capital projects. The releases, she said, were fully cash backed. Within the same time frame (January to May), she said N4.86 trillion was spent on ministries, department and agencies of government and N1. 8 trillion for debt servicing. The minister noted that government had kept faith in the discharge of all necessary obligations including salary and overheads.

Income stream expansion amidst headwinds

Government recorded a significant revenue leap influenced largely by the non-oil sector between January and May 2021. Giving account of revenue performance within the period, she put the Federal Government retained revenue at N1.84 trillion, 67 per cent of pro-rata target. The breakdown provided in her slide showed the Federal Government share of oil revenue within the period was N289.61 billion (which represents 50 per cent performance), while non-oil tax revenues totaled N618.76 trillion (99.7 per cent of pro-rata). Companies Income Tax (CIT) and Value Added Tax (VAT) collections were ahead of the budget targets with N290.90 billion and N123.85 billion, representing 102 per cent and 125 per cent respectively of the pro-rata targets for the period. Customs collections was N204.0 billion (86 per cent of target) Other revenues amounted to N762.70 billion, of which independent revenues was N487.01 billion.

A peep into 2022 – 2024

The groundwork for the actualisation of the 2022 fiscal budget have commenced in earnest. The minister had, two weeks ago, presented the 2022-2024 Medium Term Expenditure Framework/ Fiscal Strategy Paper (MTEF/ FSP) to the media/public. Afterwards, president Muhammadu Buhari followed up last week by laying the MTEF/ FSP 2022-2024 draft document at the National Assembly. Speaking at the unveiling of the MTEF/FSP draft document, Ahmed noted that “the 2022- 2024 MTEF/FSP draft has been prepared against the backdrop of global economic recovery amidst improved vaccination outlook and lower incidence of infection. However, the medium- Term Fiscal Framework shows that there are continuing global challenges in the aftermath of COVID-19. “Overall, fiscal risks are somewhat elevated, following weaknesses in the economy and slower-than-expected recovery. “As observed in the 2021-23 MTEF/FSP, weaker-than-expected economic performance threatens our ambitious revenue growth targets, as seen in the 2021 performance up to May. “Non-oil revenue performance has been impressive and heading in the right direction. Efforts will be sustained in this regard. “High costs, including PMS under-recovery and cost of securing oil pipelines are however weighing down on oil revenues. These issues must be addressed wholly to free up much needed fiscal space.” For 2022 and beyond, Ahmed said the Federal Government projected budget size of N11.907 billion, N13.412 billion in 2023 and N14.655 billion in 2024 respectively. For the 2022, Ahmed said the Federal Government projected budget size of N11.907 billion, N13.412 billion in 2023 and N14.655 billion in 2024 respectively. For the 2022 fiscal budget proposal, Federal Government’s basic assumptions are $57.0 oil benchmark at 1.88 oil production ( mbpd) , exchange rate of N410 to a dollar, while inflation rate is projected at 13 per cent and GDP of 4.20 per cent. In terms of revenue, the projected amount of revenue available for the Federal Government (including GOEs retained revenue) in 2022, is estimated at N7.2 trillion, N8.7 trillion for 2023 and N9.2 trillion for 2024. Of the amount, the share of oil revenue is N3.1 trillion in 2022, N4.4 trillion in 2023 and N4.1 trillion in 2024. Share of the Federal Government’s dividend (NLNG) is put at N184 billion in 2022,while the share of minerals & mining is N2.9 trillion with expected revenue from GOEs in 2022 put at N2 trillion. For the expenditure component side, the Federal Government projected statutory transfer of N613 billion 2022, debt service N3.6 trillion, sinking fund N292.7 billion and a recurrent (non- debt) N6.2 trillion.

Oil under recovery debacle

Fuel subsidy will remain a knotty issue to be tackled in 2022, at least, so it showed. In 2022, the Federal Government proposed N900 billion fuel subsidy in N11.9 trillion 2022 budget size. Admitting that the retention of the fuel subsidy regime hurts’ the economy, government said it found itself in a tight corner to suspend it. Commenting on the subsidy Ahmed said: “This costs us big time. We have a situation where subsidies cost us N150 billion in a particular month. That means, an NNPC has to use that amount of money to pay for PMS and distribute it. That is money that the federation account can share. This is money that could have been available for education, health and infrastructure. We will reduce our borrowing. We will increase the amounts that states and local governments are collecting. “We are being penny wise pound foolish to think that by giving this subsidy, that citizens are benefitting. But at the end of the day, the citizens are actually the ones that are carrying the brunt of the wealthy. Some have two, three, four cars and they are the ones that we are subsidising. “It is not helping the farmer who needs a bus from his farm to the market. But if we get rid of subsidies completely, although it is not a popular view with labour… “Right now, we are subsidising consumption in Nigeria, we sell at N165 per liter when our neighbors are selling at N500 per liter. It is only the marketers that are benefiting by taking this product from Nigeria and selling it across borders. The common man is not benefiting. “The transition is not an easy one if we have to remove the subsidy. What are the alternatives? What can we provide for citizens? So, we are projecting if we’ll be paying at least N900 billion subsidy for next year. “Imagine what we could have done with that amount. How many schools can you build, how many health centers? It is not wise; it is not wise because we are hurting our economy.”

Last line

Although, the economy is assailed by multifaceted challenges, no doubt, it has, however, been able to navigate through the storm to stay afloat in 2021 thus far.


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