Nigeria’s debt burden and pressure on 2023 budget – Part 1

ON Tuesday, January 3, 2023 President Muhammadu Buhari signed the 2023 Budget of the Federal Government of Nigeria into law. It was done shortly after the National Assembly had passed the 2023 Appropriation Bill, after going through the routine processes in the Senate and House of Representatives. It is one annual ritual that has always pitted the Legislature against the Executive. It has always been contentious, not because the National Assembly wants to pass a clean bill, but largely because of sundry reasons. At the end of the exercise, what is eventually passed for assent by the President is often messier than what was proposed. 

The economic down-turn in the country triggered by a lot of factors, including corruption and mismanagement, apart from the global economic drought, created spirals in the economic landscape and made the 2023 budget a very difficult instrument to package. Balancing revenue expectations and expenditure projections proved difficult and what was sent to the National Assembly eventually was a pack of fiscal contradictions. It immediately raised the antennae of economic and financial experts who pounced on the package and dismissed it as an unworkable proposal. 

With a frightening debt stock and interest profile that is higher than each of the revenue and capital expenditure provisions, the package immediately assumed the status of a deficit budget, with serious concerns as to implementation; particularly given the fact that it comes in an election year where a change in leadership is already in the offing.

The total budget package is N21.8 trillion made up of N967.5 billion as statutory transfers; N6.55 trn for debt servicing; N8.32 trillion for recurrent expenditure and N5.97 trillion earmarked for capital expenditure. The revenue is largely based on crude oil proceeds which production levels have been estimated at 1.69 million barrels per day at 75 USD per barrel. Exchange rate is put at N435.57 per USD while GDP growth was projected at 3.75% and inflation rate of 17.16 percent.  The projections for the exchange rate, GDP growth and inflation rate have already been dismissed by economic experts as unrealistic, given variables on ground. 

While some experts say the budget package is unreasonable, others say it is unrealistic given the fundamentals. They point to the debt stock and fear that debt repayment would swallow the entire revenue haul and push the country into another round of debt sourcing to finance recurrent expenditure. Financing capital project under this budget regime looks more like a mirage, except perhaps government again approaches the financial market cap in hand. If that happens, the implication can only be imagined. Public debt is already put at $200bn, attracting interest of between 10% and 15%, as against the normal 5% for foreign loans.

Most worrisome about the debt stock is the borrowing pattern which has seen domestic, particularly from the Central Bank (CBN),

far exceeding limits allowed by the law. The instrument which is known as Ways and Means (W&M) has been bastardised. Whereas the CBN Act provides for N500 billion where necessary and not more than N1 trillion in an emergency situation, the current status is put at about N22 trillion.

Granted, as often explained by government officials, that foreign loans are used for infrastructure financing, it is not clear, since it is yet to be explained, what the borrowings from W&M have been used for. There was no declaration of any doctrine of necessity and no Economic Emergency Bill was sent to the National Assembly, so why did the CBN governor break the CBN Act and put W&M of N22 trillion at the disposal of government? That action has now prompted requests for a proposal to the National Assembly for securitization of the loans. Securitization of W&M is illegal, particularly if the process of procurement was arbitrary. It must be noted that it is only the DMO that is vested with the power to raise domestic loans for the Federal Government; and the National Assembly is only approached for approval to collect foreign loans.

The current state of affairs seem to be a product of some level of recklessness in economic management, particularly in financial controls, for which the CBN is now under pressure to explain the huge lending through the W&M window. The CBN Act specifies clear guidelines that limit advances to government. The financial circuit-breakers, including the Debt Management Office and the Fiscal Responsibility Act seem to have been side-stepped leading to the avoidable fall into the current death trap. These measures were put in place to efficiently manage the country’s debt and ensure financial stability. Now the country’s debt situation is abysmal. 

As at the time the 2023 budget was presented, it was difficult to place a finger on exactly how much the country owes, because there are discrepancies between the CBN figures, the Debt Management Office figures and figures from the Budget Office of Nigeria. And because the CBN no longer publishes its annual account publicly, it is difficult to say exactly how much government has borrowed from it. When the financial circuit breakers are by-passed, the economy goes into a tailspin. That’s where we now find ourselves.

The 2023 budget is therefore retrogression because the revenue projections are not even up to half of the expenditure proposal. Government still wants to borrow to fund the deficit. The debt to GDP ratio is abysmally high. Government is borrowing at a cost to pay debt. That is not sustainable. Absolutely indefensible! Economically, it is wrong to retain the oil subsidy. So why not remove it immediately to reduce the deficit level and avoid further borrowing? 

The 2023 Budget is also not sensitive to fact that there will be two sets of government in the budget year. The next and subsequent governments might be saddled with too much baggage likely to weigh them down. Already there is a debt overhang of N77 trillion which the next government will be inheriting. Something urgent needs be done to forestall the potentially ugly situation. 

Government can still summon the courage to remove subsidy on petroleum products immediately and save the country from incurring more debts. The National Assembly should take a critical look at the Finance Bill and ensure that it does not create more challenges for the economy, particularly the private sector which drives economic growth. There must be a deliberate effort to grow the economy by pushing more revenue streams.

To avoid a recurrence of the current situation, government must seriously interrogate the causative factors and sanction culprits. The CBN governor must explain from where he derived the powers to ignore the provisions of the CBN Act on Ways and Means. We need to emphasize the issue of accountability: What was the CBN borrowing used for? Government officials must be made to pay for infractions, recklessness and irresponsibility. The recklessness in the public finance sector of the economy must stop. 

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