More troubles for Nigeria as 2022 budget deficit hits N7.35trn

Emeka Okoroanyanwu

As Nigeria heads into a feisty general election early next year, reports reaching The Nigerian Xpress indicate a scary economic situation for the country.  Investigations by this newspaper reveal that the country’s economy is continuously and dangerously heading southwards, even as the minders of the country’s affairs are presenting otherwise.

An indication that things are not going according to plans was unveiled last week when President Muhammadu Buhari, in a letter to the House of Representatives, informed the Green Chamber that the deficit in the 2022 Appropriation Act has risen by N965.42billion to N7.35trillion.

This development comes just two months after the 2022 Appropriation was passed into law by the National Assembly. In the letter, the president restated his earlier position that the Federal Government would borrow funds to fill the gap. He also called for an amendment to the Federal Government’s budget and the fiscal framework for 2022 to reflect present realities.

Experts say Nigeria’s economic problems are hydra-headed, with growing oil theft leading the way.

Lamenting the bad situation, the Federal Government last month raised the alarm over the rising rate of crude oil theft in the Niger Delta, disclosing that about $3.27 billion worth of oil had been lost to vandalism and theft in the past 14 months.

The government bemoaned the high-level cases of oil theft, saying it had become a threat to the country’s corporate and economic existence.

On its part, the Independent Petroleum Producers Group, IPPG, disclosed that about 82 per cent of its oil production was stolen in the month of February 2022 alone.

Represented by the Managing Director of Waltersmith Petroman, Chikeze Nwosu, the group said independent producers are facing existential threats.

Nwosu explained that the oil theft challenge had grown from what it used to be in the past when it was just about four per cent, lamenting that it was as high as 91 per cent in December 2021. He pointed out that the situation seemed to be getting worse, despite all efforts to curb it and called for urgent action

The critical revenue situation of the country was late last year brought to the fore by President Muhammadu Buhari himself. While presenting the 2022 budget to the joint session of the National Assembly, the president disclosed to a bewildered nation that the country would rely more on borrowing to fund the budget given that the country already spends over 70 per cent of its generated income on debt servicing.

Supporting the president on the parlous financial situation of the country, Minister of Finance, Budget and National Planning, Zainab Ahmed, while lamenting the dismal revenue to debt profile of the country during the presentation of the 2022 budget to stakeholders early in the year, revealed that the Federal Government would finance the budget with multilateral and bilateral loans valued at N369.93billion and new borrowings of N6.68 trillion.

Ahmed also disclosed that the N6.68 trillion had been earmarked for fresh loans in the 2022 budget.

The minister painted a gloomy picture of how insecurity, low earnings, and inability to meet the Organisation of  Petroleum Exporting Countries, OPEC’s quota for oil production had driven the Federal Government into embarking on excessive borrowings to fund its expenditure.

She noted that the government’s real problems were personnel costs, debt servicing, capital expenditure projected to gulp about 85 per cent of the 2022 budget. She added that there was very little scope for a cut in any of the items over the medium term. According to her, the most viable solution to the country’s fiscal challenges remains growing its revenues and plugging all leakages.

“Our target over the medium term is to grow our Revenue-to-GDP ratio from about eight to nine per cent currently to 15 per cent by 2025. At that level of revenues, the Debt- Service-to-Revenue ratio will cease to be a critical concern. The SRGI and other ongoing initiatives will address this,” she explained.

While defending government borrowing and the country’s debt level, the minister insisted that the country had a revenue challenge, and not a debt problem, adding that the debt level was still within sustainable limits.

Nigeria is, according to the Debt Management Office (DMO), owing a debt of N40 trillion and the figure is expected to go higher as elections draw closer.

Patience Oliha, Director-General of DMO, disclosed recently in Abuja that the country’s total public debt stock increased to N39.56tn, approximately N40 trillion, in 2021 from N32.92trillion in 2020.ß

The amount, she said, includes new borrowings by the Federal Government and other sub-national debts, thus, representing the total external and domestic debts of the Federal Government, the 36 state governments and the Federal Capital Territory.

Oliha disclosed that Nigeria’s debt blossomed because the money borrowed was used to finance budget deficits, capital projects and support economic recovery programmes of the Federal Government.

For instance, in 2021, the Federal Government borrowed N5.49 trillion to part finance that year’s budget deficit.  For the 2022 Federal budget, the total federally distributable revenue was estimated at N12.72 trillion while total revenue available to fund the budget was estimated at N10.13 trillion. The budget itself was estimated at N16.39 trillion, with a built-in deficit of N6.21 trillion.

But the DMO DG had said borrowings for projects and deficit financing by the multilateral and bilateral creditors account for a significant portion of the increase in the debt stock while increases were also recorded in the debt stock of the states and the FCT.

She was, however, optimistic that despite the debt increase, the country is still within the total public debt stock to the Gross Domestic Product limit of 55 per cent set by the World Bank and 70 per cent set by the Economic Community of West African States.

She said that the Federal Government was mindful of the relatively high debt-to-revenue ratio and has established certain measures to increase revenues through the strategic revenue growth initiative and the introduction of Finance Acts since 2019.

According to her, “The new borrowings were raised from diverse sources, primarily through the issuances of the Eurobonds, sovereign Sukuk, and the FGN bonds. These capital raisings were utilised to finance capital projects and support economic recovery.

“With the total public debt stock to GDP as at December 31, 2021, of 22.47 per cent, the debt-to-GDP ratio still remains within Nigeria’s self-imposed limit of 40 per cent. This ratio is prudent when compared to the 55 per cent limit advised by the World Bank and the International Monetary Fund for countries in Nigeria’s peer group, as well as, the ECOWAS convergence ratio of 70 per cent.”

In the letter to the House of Representatives last week, titled ‘Submission of the Revised 2022 Fiscal Framework’, and dated April 5, 2022, and read at the plenary, the President said there have been new developments both in the global economy as well as in the domestic economy, which have necessitated the revision of the 2022 Fiscal Framework on which the 2022 budget was based.

According to him, the developments include spikes in the market price of crude oil, aggravated by the Russian-Ukraine war, which has  significantly lowered oil production volume due principally to production shut-ins as a result of massive theft of crude oil between the production platforms and the terminals. He also said the decision to suspend the removal of Premium Motor Spirit (PMS) subsidy at a time when high crude oil prices have elevated the subsidy cost has significantly eroded government revenues.

Buhari said also that there is the need to make adequate provisions for the recent enhancements of allowances for officers and men of the Nigeria Police Force to boost their morale as they grapple with heightened security challenges in the country.

Following these developments, he said, it has become necessary to adjust the fiscal framework and accordingly amend the 2022 Appropriation Act to ensure its successful implementation.

The President said the adjustments to the 2022 Fiscal Framework include an increase in the projected oil price benchmark by $11 per barrel, from $62 per barrel to $73 per barrel; a reduction in the projected oil production volume by 283,000 barrels per day, from 1.883 million barrels per day to 1.600 million barrels per day; an increase in the estimated provision for PMS subsidy for 2022 by N3.557tn, from N442.72bn to N4tn.

Other adjustments include a N200bn cut in the provision for federally-funded upstream projects being implemented, from N352.80bn to N152.80bn; an increase in the projection for Federal Government independent revenue by N400bn; and an additional provision of N182.45bn to cater for the needs of the Nigeria Police Force.

The letter partly read, “Based on the above adjustments, the Federation Account (main pool) revenue for the three tiers of government is projected to decline by N2.418tn, while FGN‘s share from the account (net of transfer to the Federal Capital Territory and other statutory deductions) is projected to reduce by N1.173tn.

“However, the amount available to fund the FGN Budget is projected to decline by N772.91bn due to the increase in the projection for independent revenue (Operating Surplus Remittance) by N400bn.

“Aggregate expenditure is projected to increase by N192.52bn, due to increase in personnel cost by N161.40bn and other service wide votes by N21.05bn (both for the Nigeria Police Force), additional domestic debt service provision of N76.13bn, and net reductions in statutory transfers by N66.07bn.”

Buhari listed statutory transfers’ adjustments as follows: NDDC by N13.46bn, from N102.78bn to N89.32bn; NEDC by N6.30bn, from N48.08bn to N41.78bn; UBEC by N23.16bn, from N112.29bn to N89.13bn; Basic Health Care Fund by N11.58bn, from N56.14bn to N44.56bn; and NASENI by N11.58bn, from N56.

He said the total budget deficit was projected to increase by N965.42bn to N7.35tn, representing 3.99 per cent of the GDP, noting that the incremental deficit would be financed by new borrowings from the domestic market.