The Federal Government yesterday said it plans to borrow over N11 trillion to finance the proposed 2023 budget deficit, which exceeds the stipulated threshold in the Fiscal Responsibility Act.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, disclosed this when she appeared before the House of Representatives Committee on Finance, to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
She explained that the draft MTEF/FSP was prepared against the backdrop of continued global challenges occasioned by lingering COVID-19 pandemic effects, as well as higher food and fuel prices due to the Russia/Ukraine war.
Specifically, she said the government also plans to sell some national assets to finance the budget deficit, which is expected to exceed N12.42 trillion if it retains the petroleum subsidy regime for the entire 2023 fiscal cycle, and painted two scenarios upon which the 2023 budget proposal is based.
In the first scenario, Ahmed explained that the deficit is projected at about N12.41 trillion in 2023, up from N7.35 trillion budgeted in 2022, representing 196% of the total revenue or 5.50% of the estimated gross domestic product (GDP).
Based on this, she added that the federal government would spend about N6.72 trillion on subsidy payments.
In the second scenario, she said if the government keeps subsidy payments up till June 2023, the budget deficit would amount to N11.30 trillion, which is N5.01 trillion of the estimated GDP. In this option, the subsidy on premium motor spirit (PMS) also called petrol, is projected to gulp about N3.3 trillion.
Funding budget deficit
Clarifying further, Ahmed said while the first option is not likely to be achievable based on the current trend; the second option would require tighter enforcement of the performance management framework for government-owned enterprises that would significantly increase operating surplus in 2023.
Under the second scenario, she said the new borrowings would be funded from local and international sources. According to her, this will include about N9.32 trillion in new borrowings, comprising N7.4 trillion from domestic sources and N1.8 trillion from foreign sources.
Also, the government is expected to generate N206.1 billion from privatisation proceeds and N1.7 trillion in multilateral project-tied loans.
We actually follow the Medium Term Debt Management Strategy very strictly; the debts are not taken haphazardly, and they are planned. They are appropriated, and then we borrow against appropriation.
She admitted that the two proposals have budget deficits far above the stipulated threshold in the Fiscal Responsibility Act, which provides a limit of three per cent of the GDP for sustainability.
However, the law also allows that based on approval by the National Assembly, the president can exceed the ceiling if in his opinion, “there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria.”
On crude oil production challenges and PMS subsidy deduction by the NNPC Limited, Ahmed noted that these constitute a significant threat to the achievement of the budget targets, as seen in the 2022 performance up to April.
She said oil production for 2023 would be pegged at 1.69 million barrels per day at $70/barrel and an exchange rate of N435.57/$, where real GDP growth is pegged at 3.7% and an inflation rate of 17.16%.
Debt serving, sustainability
Ahmed said despite overshooting the appropriation in the 2022 budget, there are no projections that Nigeria would default on her debt servicing, as systems are in place to manage the situation.
She said: “We planned that 60% of revenue would be spent on debt servicing, but in some months, the ratio went up to 90%.
“We have been able to, consistently without fail, service our debt, and we do not have any projections even in the near future that we will fail.
“We actually follow the Medium Term Debt Management Strategy very strictly; the debts are not taken haphazardly, and they are planned. They are appropriated, and then we borrow against appropriation.”