The 2023 Appropriation Bill, christened: ‘Budget of Fiscal Sustainability and Transition’ was presented by President Muhammadu Buhari to the National Assembly on Friday, October 7, 2022. The proposed total expenditure of N20.51 trillion, which includes N2.42 trillion spending by Government-Owned Enterprises (GOEs) is a record budget, even higher than the earlier proposal of N19.76 trillion approved in 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) submitted to the National Assembly.
The 2023 expenditure template comprises Statutory Transfer of N744.11 billion; Non-Debt Recurrent Costs of N8.27 trillion; Personnel Costs of N4.99 trillion, Pensions Gratuities and Retirees’ Benefits of N854.8 billion; Overheads of N1.11 trillion; Capital Expenditure of N5.35 trillion, including the capital component of Statutory Transfers; Debt Service of N6.31 trillion; and Sinking Fund of N247.73 billion to retire certain maturing bonds.
The budget is based on fiscal assumptions of an Oil price benchmark of $70 per barrel; daily oil production estimate of 1.69 million barrels (inclusive of Condensates of 300,000 to 400,000 barrels per day); exchange rate of N435.57/$ and projected GDP growth rate of 3.75% and 17.16% inflation rate.
Based on these fiscal assumptions and parameters, total federally-collectible revenue is estimated at N16.87 trillion, total federally distributable revenue at N11.09 trillion, and total revenue available to fund the 2023 Federal Budget is estimated at N9.73 trillion, including revenues of 63 Government-Owned Enterprises.
Oil revenue is projected at N1.92 trillion, non-oil taxes are estimated at N2.42 trillion, and FGN independent revenues are projected to be N2.2 trillion. Other revenues total N762 billion, while the retained revenues of the GOEs amount to N2.42 trillion.
From the foregoing, looking at the budget estimated recurrent (non-debt) expenditure of N8.27tn or 40% of the proposed budget; it is 19.68% higher than the 2022 budget. This is very high and it has to be tinkered with. Having an expansionary fiscal policy with this high level of fiscal deficit on the backdrop of a higher component of it skewed to consumption will not give the desired impact of a fiscal deficit. Moreso, it is more sustainable to empower the private sector to create jobs while the government creates a thriving business environment.
Also, the declining capital expenditure and the rising debt provision call for caution. The capital expenditure, excluding the capital component of statutory transfer, is just N3.86tn or 19% of the proposed budget. This is low compared to the non-debt recurrent expenditure and personnel costs. This has been the trajectory over the years.
More worrisome is the debt service provision of N6.56tn as contained in the appropriation bill, which is 32% of total expenditure and 67.31% of total revenues. Again the debt service provision is high, even higher than 2021 N3.61 trillion or 21% of total expenditure and 34% of total revenues.
This leaves us with a deficit of N10.78tn, higher than last year’s deficit of about N8tn. With the deficit financing to come from borrowing: from external borrowings to the tune of N8.8 trillion ($20.3 billion) and bilateral/multilateral borrowings of N1.77 trillion amid concerns over the country’s high public debt, which was N42.845 trillion ($103.312 billion) as of June 2022 according to data from DMO, also calls for caution. We must reassess our debt sources to borrow at a lower rate or access more zero-interest loans like Sukuk, especially as we expect the deficit to widen going by revenue shortfall records.
Over the years, revenue targets have not been met, even President Buhari knows that. He acknowledged that in his 2023 budget speech. “As of July 31, 2022, FG retained revenue was 3.66 trillion Naira, excluding the revenue from Government-Owned Enterprises. Thus revenue collection was only 63 percent of our target due to the underperformance of oil and gas revenue sources.” If you interpolate that, you would have ended the year with revenue of N6.3 trillion for the year. So, you made N6.3 trillion this year and plan to make N9.73 trillion next year; is a leap of faith and hope. The takeaway is that the deficit is most likely to exceed the proposed if left as it is.
One reoccurring and controversial public issue is the petrol subsidy, which has been a major drainpipe and a major contributing factor to our fiscal deficit. And if the incoming administration can muster that political will and remove fuel subsidies, the budget will get a huge relief. The president pointed out that the fiscal impact of fuel subsidies has shown that it is not sustainable. Though it is the right call, the president should have addressed it, rather than shifting it to the incoming administration.
Albeit, it is imperative, that it must be done. According to official figures from the Nigerian National Petroleum Company (NNPCL), between January and June 2022, the country paid N1.372 trillion in fuel subsidies. That would mean about N2.7 trillion in subsidy payments for 2022. The government has proposed about N6.7 trillion as a fuel subsidy in the 2023 budget. So if you take out any of this amount and channel it to more productive areas, it would not only be a critical saving, a relief to the budget but as well, reduce the revenue shortfall.
Another critical area to be rationalized to achieve critical savings is the MDAs. The government has made provisions for non-debt service of about N8.27 trillion and personnel cost of N4.99 trillion. If the MDAs are rationalized, you are most likely to bring down their recurrent costs. These are clear areas of savings to critically look into by the National Assembly as per the budget and should form the incoming administration’s outlook.
Looking at the proposed GDP growth rate of 3.7% seems unachievable going by current macroeconomic realities. With the Central Bank in contractionary monetary policy mode, hiking Interest rates and cash reserve ratio, that growth may be difficult to realize. On the one hand, when interest rates are high, the cost of borrowing increases and thus reduces aggregate demand and investment. On the other hand, the hike in CRR contracts the banks’ chances of creating more loans, the high-interest rates notwithstanding. This stalls economic growth. The expansionary fiscal policy, which could have counter-balanced the tightening monetary policy, is on the back of consumption and not productive.
But one thing that has been going well for President Buhari is his consistency in presenting the budget on time. October is a good time and the National Assembly has ample time to elaborately and critically look at the budget, taking cognizance of analysts, economists, and stakeholders’ comments and opinions to make it a realistic, achievable, transitional, and sustainable budget.