. Debt stock to hit beyond N40trn by 2022 end
By Victor Uzoho
Economic experts have expressed concerns about Nigeria’s ability to meet its revenue aspirations in the 2022 National Budget.
The experts, who gathered at a virtual event, tagged: “A reality Check on 2022 FGN Budget,” organised by the Department of Economics, Faculty of Economics and Management Sciences, University of Ibadan, on Wednesday, argued that for objectives to be realised, the budget must connect with global realities.
Specifically, the Chief Executive Officer, Economic Associates, Dr Ayo Teriba, decried that Nigeria pursues both annual budgets and ambitious five-year plans, noting that unless the country can fund the budget effectively, the “five-year plan will remain in the realm of castles.”
“It is not enough to announce a plan to spend N14.587 trillion or N17.13 trillion. It’s just a statement of intention. What is important is its fundability,” he said.
He noted that the year 2021 budget was funded more by deficit than by revenue, stating that Nigeria had borrowed N7 trillion after it planned to borrow N6.5 trillion.
Insisting on more realistic projections, he argued if all the revenue the country could find in 2021 was N5.5 trillion, proposing N10.7 trillion in 2022 with the same conditions was unrealistic.
Teriba continued: “We never found it in the last eight years. We never did anything better than N6 trillion revenue in the best of years in Nigeria, so why are we allowing biased revenue projection.
“If it doesn’t happen, the deficit of N6 trillion would be overshot and in the end, we are not going to deliver on the capital spending commitment. It was just N3.4 trillion up till November 2021, and we are planning N6 trillion this year.
“We may deliver on the recurrent because at the end we will have to pay salaries, but the debt cost is not going to be N3.6 trillion because if you borrow more than N6 trillion you are going to pay more.
“Much of the revenue increase expectations are hinged on increased taxes. And it is unreasonable to expect to get more taxes from an economy that is in recession and under devaluation. Who is going to pay the increased taxes? And the deficit would most likely be more than budgeted once revenue disappoints.”
However, he sees huge opportunities in asset securitisation, which are unexplored.
“If we could find a few national assets that are currently ideal, we can securitise them either as debt securities or as equity securities and you don’t pay interest on them. They have to generate the profits and you don’t repay them because they are self-amortising,” he added.
We never did anything better than N6 trillion revenue in the best of years in Nigeria, so why are we allowing biased revenue projection.
Higher oil revenue
On his part, the Chief Executive Officer, Preston Consults, Dr Tochukwu Nwachukwu, observed that the government expects a lot of revenue from oil revenue in the 2022 budget, based on expectations of higher crude prices.
He noted that most of the N6.39 trillion budget deficit would be financed from new borrowings, and with a debt stock of about N38 trillion as of September 2021, as posted on the Debt Management Office (DMO) website, the deficit would shoot beyond N40 trillion by the end of 2022.
To enhance revenue, Nwachukwu urged improvement in the collection of taxes, and review of waivers and concessions in line with increase in investments.
Also, he canvassed increment in customs revenue through the use of technology, and the protection of oil and gas earnings so that “we don’t have a situation where we collect so much but spend a lot of it on the cost of production.”
Regardless of the earnings, Nwachukwu argued that until Nigeria begins to focus on how to effectively diversify its revenue sources away from oil, progress will remain restricted.
He continued: “Until this current petroleum subsidy regime is either removed or significantly reduced, we would continue to have a serious problem with revenue.
“Also, regardless of how much effort is made to attract investments both domestic and foreign, until we address the insecurity issues in the country, it would be difficult to attract investments.
“The government should also take advantage of all the trade agreements, especially the African Continental Free Trade Area (AfCFTA), to make sure that Nigeria does not become a dumping ground for other countries and regain its place as the number one investment destination in Africa.
“The government should also ensure a focused implementation of the PIA to drive increased investments in the oil and gas sector.”
From his perspective, the Founder/Chief Executive Officer, 4MNT, USA, Dr Olumuyiwa Adedeji, wondered if the economy can absorb additional domestic borrowing of about N5 trillion in 2022, with the official exchange rate of N410 to $1 and inflation at 13%.
To move the economy forward, he suggested that the fiscal policy must be agile and respond effectively to the emerging challenges rather than funding local debt through Central Bank of Nigeria (CBN) ways and means with implications on inflation and the exchange rate.
In 2022, the estimated budget deficit is about N6.37 trillion. As we know, this is more than the limit provided by the Fiscal Responsibility Act.
Fiscal responsibility
On his part, Head, Department of Economics, University of Ibadan, Prof Adeola Adenikinju, is worried about the effect of deficit budgeting on fiscal responsibility.
He said: “In 2022, the estimated budget deficit is about N6.37 trillion. As we know, this is more than the limit provided by the Fiscal Responsibility Act.
The Fiscal Responsibility Act provides that in the budget deficit in a year all things being equal should be about three per cent of the Gross Domestic Product (GDP),”
As a result, he called for a cessation of oil subsidy saying it encourages underperformance and undermines what the Nigerian National Petroleum Company (NNPC) remits to the Federation Account.
