…experts predict Nigeria’s fresh debts to hit N15trn 2023
The 2023 budget deficit exceeds the threshold as stipulated by the Fiscal Responsibility Act (FRA), 2007, Dataphyte learnt.
It is never wrong for countries to borrow, as long as such borrowing would be targeted at specific infrastructure spend that would, in turn, make life better for the people.
But that is never the case for Africa’s biggest economy, which in 2018 became the poverty capital of the world, according to the Brookings Institute, with about 40 percent of the population living below poverty line.
New findings by Dataphyte showed the federal government’s plan to borrow N8.80 trillion to finance its 2023 budget is a breach of Nigeria’s Fiscal Responsibility Act.
The Fiscal Responsibility Act, 2007 states in section 12(1) that the “Aggregate expenditure and the aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three per cent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly for each financial year”.
The FRA further reads in section 12(2) that the “Aggregate expenditure for the financial tear may exceed the ceiling imposed by the provisions of subsection (1) of this section if in the opinion of the president there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria”.
A detailed breakdown of Nigeria’s 2023 budget tagged ‘Budget of Fiscal Consolidation and Transition’ represents 4.78 per cent of the estimated Gross Domestic Product (GDP) of the country.
“We expect total fiscal operations of the Federal Government to result in a deficit of 10.78 trillion Naira. This represents 4.78 percent of estimated GDP, above the 3 percent threshold set by the Fiscal Responsibility Act 2007,” President Muhammadu Buhari told Nigeria’s lawmakers on October 7.
The President added that the deficit of the annual budget would be financed by new borrowings totaling N8.80 trillion and N206.18 billion from privatization proceeds and N1.77 trillion drawdowns on bilateral/multilateral loans secured for specific development projects and programmes.
Checks by Dataphyte showed this development is another breach of the fiscal responsibility act as previous budgets had also exceeded the three per cent budget deficit threshold in the revised 2020 budget.
The deficit has continued to increase over the years when the revised 2020 budget fiscal deficit rose to 3.29 percent of the GDP from the 3 percent threshold it was pegged at in the initial proposed budget.
In the 2021 and 2022 budgets, the fiscal deficit rose to 3.64 percent and 4.52 percent of the GDP respectively.
Justifying its obsession with debt in 2023, President Buhari while delivering his budget presentation speech said the exceeded threshold is due to the need to continue to tackle the existential security challenges facing the country.
‘As envisaged by the law, we need to exceed this threshold considering the need to continue to tackle the existential security challenges facing the country,’ Buhari told the National Assembly
Our budget system is irresponsible, expert says
Samuel Atiku, a budget expert and also the Technical Coordinator at the International Budget Partnership said the FRA is an advisory role in the budgeting system and the letters in the act have not been implemented which is not only peculiar to this year’s budget.
He also stressed that 2020, 2021, and 2022 size of the deficit were higher than what was stipulated in the FRA noting the fiscal irresponsibleness of our budgets over years.
He however lamented that there is nothing to be done if the FRA was not adhered to.
“As advisory as the FRA is, the FG can just look at it while budgeting, but if they do not abide by it, there is nothing anybody can do,” Atiku said.
In terms of its economic implication, Atiku said we have a situation whereby the government presents ‘overly optimistic estimates’.
“When looking at the budget revenue, we have just always done on the average below N5 trillion and not higher than that. There is no indication that suggests that we are going to get close to the N11 trillion that they have projected in the budget estimate.
“2023 is a transition year, and if you are building a budget of N20 trillion on the back of revenue of N5 trillion and considering the debt service of about N6 trillion, it shows clearly how irresponsible our budgeting system is.
“If you look at it from 2015 till this time, you can see clearly that we have accumulated a lot of debt, including bilateral/multilateral loans, outstanding payments to contractors, the indebtedness of the federal government to the CBN which is a big ball that is about to explode on our face.”
2023 will continue in this path
The FG revenue is anchored on four components which are revenues from the Customs, Company Income Tax (CIT), Independent agencies of government and government-owned enterprises, and the Value Added Tax (VAT). However, revenue from these streams has its peculiar intricacies and shortfall as the four components are faced with serious headwinds.
For the customs revenue to be increased, Atiku said people would have to import or export more goods. However, production is on the decline resulting in more shortfall in the number of goods that are exported coupled with the foreign exchange challenge we are faced with.
Talking about CIT which is tax on profitability of businesses, Atiku postulated that next year, companies in Nigeria will not be 100 percent profitable because of the unstable inflationary environment, insecurity and unavailability of raw materials.
Independent agencies of government and government-owned enterprises have always been irresponsible with the way they manage their funds. Atiku said there is presently no framework to compel independent agencies of government and government-owned enterprises to be accountable.
The final component of government independent revenue which is the VAT is a contentious issue as to its ownership.
When asked about how the federal government intends to fund the deficit with a new borrowing of about N8.80 trillion and N206.18 billion from privatisation proceeds, Atiku said, with the reality on ground, the government might have to borrow as much as N15 trillion, which is double of what they proposed in the budget. He went on to say there is an antecedent to this already as they have done that in the past.
The latest data from the Debt Management Office (DMO) pegged Nigeria’s public debt stock at N42.84 trillion.