Recently, the Minister of Finance, Zainab Ahmed, gave a breakdown of the country’s performance in the first four months of the year. The breakdown shows that the government spent N4.72 trillion and generated N1.63 trillion.
According to the report, the country could only generate 45.53% of the N3.58 trillion estimated for the first four months.
While the country’s inability to generate a good portion of its estimated revenue creates fiscal issues, it highlights yet another issue.
The country’s finance ministry has reduced the estimated revenue projection for 2022 from N10.74 trillion to N9.97 trillion. This 7.18% downward revision has increased the budget deficit by 12.07% from the original N6.386 trillion.
This means the budget deficit for 2022 has increased from N6.386 trillion to N7.157 trillion. The adjustment was contained in the country’s budget call circular, as released by the finance ministry to prepare for the 2023 budget.
The benchmark for the sale of crude per barrel was increased from $62 per barrel to $73 per barrel. However, the expected production capacity of oil was reduced from 1.88 million barrels per day (mbpd) to 1.6 mbpd. This means the country is estimated to produce 0.28 mbpd less from July forward.
Previously, the average inflation rate was pegged at 13% for the year, giving a nominal GPD at year-end of N184.38 trillion. Likewise, the economy was expected to grow at a rate of 4.2% by the end of the year with a nominal consumption figure of N119.28 trillion.
However, these macro-economic parameters were reviewed and adjusted. The average inflation rate has been reviewed upward to 16.11% from July. The nominal GDP is expected to be N198.93 trillion, with the nominal consumption now put at N120.17 trillion.
With the new adjustments, the economy is expected to grow at 3.55%, less than the 4.2% projected at the beginning of the year.
These changes led to subsequent changes in the expected revenue. The revenue aspect affected mostly was that from oil. Oil revenue projection dropped by 34.85%. The revised projected oil revenue is N2.19 trillion against the N3.36 trillion that was passed initially.
The revenue from government-owned enterprises (GOEs) is expected to increase from N3.31 trillion to N3.81 trillion. This represents a 15.12% increase in the revised projections.
Independent revenue is expected to increase by N400 billion, an 18.05% increase. The revised protected amount is N2.62 trillion, while the initially passed figure was N2.22 trillion.
Despite the projected increment on other forms of revenue, these changes led to the total available revenue to the federal government declining by N771.64 billion. This decrease in revenue increases the proposed budget deficit by 12.07%, as the expenditure for the year was not revised downward.
In the first four months, the FG generated N1.63 trillion out of a revised N3.32 trillion. This shows a 49.05% revenue performance in the first four months.
If budget revenue performance remains at 49.05% for the remainder of the year, the government will only generate N4.889 trillion out of the revised revenue figure of N9.969 trillion.
Budget expenditure is moving at a far quicker pace than revenues, not only has expenditure not been revised, performance for the first four months of the year was N4.72 trillion out of N5.77 trillion, an 81.76% performance for the period. If expenditure performance remains the same throughout the year, Nigeria will spend N14.16 trillion out of the N17.32 budgeted. However, expenditure increases towards the end of the year, so it is likely that expenditure performance will be above 90% for the year.
The implications are dire, according to Vahyala Kwaga – Senior Research & Policy Analyst, BudgIT. He said the overall budget performance would be lower than projected and this will have a strong impact on the ability of the government to meet its targets with regards to infrastructure, health, education, and other responsibilities. Though, budget revenue revisions are not unusual (as macro-economic issues are difficult to predict). However, the signs that volatility will affect revenues are usually quite salient.
The Policy Analyst noted that the perennial challenge is that the Nigerian government hasn’t been as fiscally prudent as it ought to be. This is reflected in the dwindling foreign reserves, the reduction in crude oil sales and the growing debt burden. There are other numerous governance issues, such as mismanagement of the oil sector and growing subsidy payments, to name a few.
Mr Kwaga outlined the implications in clearer details that: the Federal Government (FGN) is making less than it projected to make, subsequent fiscal projections, i.e., Medium Term Expenditure Frameworks/Fiscal Strategy Papers (at national and subnational levels) will also have to be revised. Also, the National Planning documents (i.e., the National Development Plan, 2021 – 2025) and its intended policy goals will suffer serious setbacks, as the revenue that was projected to exist for those purposes is now going to be far less.
In summary, he concluded that the entire nation is in for a rough ride in the coming months.