Nigeria’s debt burden and pressure on 2023 budget – Part 2

ALTHOUGH the 2023 federal budget has been cleared for implementation, concerns are still being raised about the lack of political will to reduce cost of government business and, in the process, reduce the recurrent component of the budget which on its own has overwhelmed the revenue stream. More worrisome is the apparent reluctance of government to dispense with the subsidy regime and move away from huge deficits in annual budgets. It is rather unfortunate that instead of reducing the deficit component, that negative chapter of the budget keeps ballooning every year, with the National Assembly not helping matters at all.    

Even as Nigerians worry about the fiscal indiscipline that triggers huge borrowings, it has become routine for the National Assembly to keep increasing the package without initiating a corresponding income or revenue source that would accommodate or cushion the increase. For instance for the 2023 budget, the Executive proposed N20.45 trillion but the National Assembly jacked it up to N21.83 trillion without a care about the assumptions on which the budget was predicated; a development which further increased the already worrisome deficit level.

Unfortunately some of the increases made to the budget every year are to service the profligate spending of the National Assembly whose budget has never been subject to public scrutiny. The opacity of its budget provides cover for financial recklessness for which the resources of the country are squandered. Unlike institutions such as the Nigerian Customs Service, the Nigerian National Petroleum Corporation, Federal Inland Revenue Service and the Central Bank of Nigeria that generate revenue and run quasi-independent budgets, the National Assembly neither generates funds nor offers meaningful fiscal strategies, yet it constitutes one of the greatest avenues for financial impunity. 

The Federal Government cannot continue to visit the people with deficit budgets every year and consequent borrowing, when there are low hanging fruits that could help reduce the deficit levels and limit borrowings. With a debt overhang of about N77 trillion and the enormous repayments liabilities, the country is almost choked. It should be a howling signal for the Federal government to drastically cut spending and block leakages to conserve more funds.

The debt level on its own has raised other concerns as to what exactly the borrowed funds have been used for; just as the exact amount borrowed to date is not very clear given the different figures bandied variously by the Central Bank of Nigeria, Debt Management Office and the Budget Office of the Federation.

Although the Federal Government has routinely explained that borrowings from external sources are used for infrastructure development including roads, rails, ports, electricity and security, same explanations have not been made available to the public regarding the application of domestic loans, especially the ones sourced through the Way and Means’ window in the Central Bank. The loan through this outlet has been put at about N22 trillion currently. This is aside from accrued interest. 

Given the serious implications of borrowing such a huge amount from the emergency funding window of the apex bank, agencies which should have been sensitive to such financial indulgences are now looking for ingenious ways of pulling out of the quagmire by suggesting securitization of the amount borrowed so far from the CBN. Procedurally, this is an illegal approach which further pushes the depth of the debt trap that the country may have to battle with over decades. 

Nigeria’s debt conundrum is further worsened by the complicated uncertainty of how   global economic stability and growth will pan out in 2023 following the projection of a likely global economic recession by the World Bank, IMF, and the World Economic Forum. This is extremely unsettling, especially as Nigeria is transiting to new leaderships at national and sub-national levels. The IMF and World Bank have repeatedly warned the Nigerian government about the rising debt to GDP ratio.

The fiscal scenario is getting messier by the day and the financial circuit-breakers within the system seem to have broken down, thus allowing free flow of dangerous currents through the fiscal fabric of the country. At about 80% to GDP, it would be stating the obvious to say that the debt to GDP ratio is abysmally high. Unfortunately the revenue streams are not signaling any relief as insecurity, theft and complacency have jointly deprived the country of expected accruals; while corruption, impunity and financial recklessness have sapped the gains that accrue to the treasury. 

Apart from the oil and gas sector that is contributing a substantial chunk of revenue from external sources, agriculture and manufacturing which had showed some promise in 2017 and 2018 have been blighted by banditry and the collapse of enabling infrastructures, including power supply. While bandits have chased farmers out of the fields thus worsening the food and raw materials crises, high cost of production has crippled the manufacturing sector. The services sector maintains some reasonable resilience because of its purely essential nature; but it has not helped the country’s balance of trade status significantly.  

The various committees of the National Assembly, including the Finance and Appropriation committees, which are supposed to oversight some of the financial activities of government, particularly as it has to do with revenue sourcing and application, are weighed down by the guilt of themselves being sloppy and complicit in the whole financial miasma that the country is currently battling with.

Nigeria has one of the lowest Tax to GDP ratio in Africa and government is well aware of the situation because it keeps talking about expanding the tax net. Just like the issue of removing subsidy on petroleum products, expanding the tax dragnet has remained a proposal for too long. While the ratio in a country like South Africa is about 32%, Nigeria’s stands at about 8%.  Tax is a veritable income avenue that would have raked huge earnings into the federal purse. Why this has become an impossible task beggars belief.

Ordinarily, Nigerians would not be averse to paying taxes, but the issue has remained accountability. Those who frown at paying taxes do so because they doubt the sincerity of government in prudently utilising the funds, going by recurrent experiences. They are concerned that more revenue would still go into funding the profligate spending of government officials, including state governors and members of both the state and national assemblies, whose contributions to national development have not been very profound.

This might also be reason why the proposed Finance Bill has become controversial. The level of interests generated by the proposal sign-posts the concern of the public, particularly the manufacturing sector. The clandestine manner in which the National Assembly is handling the process fuels more suspicion that after all it might become an additional burden to the private sector. 

It must be made obvious that further burden on the private sector would mean sending the country’s economy into a faster tailspin. The already stunted economy would be further blighted. The economy should be growing at an average of about 6% to make sense; but that is not the case at the moment. The Finance Bill must not be treated just like any other bill. Inputs of critical stakeholders will give it the impetus to deliver on its essence. 

The 2023 budget does not inspire much hope. The Nigeria’s National Development Plan (NNDP) 2021-2025 projected that federal government revenues for 2023 at N13.7 trillion; but the 2023 budget estimates the total federally distributable revenue at N11.09 trillion for the year, while total revenue available to fund the budget is estimated at N9.73 trillion. This includes the revenues of 63 Government-Owned Enterprises. Clearly, the revenue projections for 2023 fall short of the NNDP projections. Necessary measures must be taken to shore up revenues to meet with the NDP projections rather than borrowing to fund consumption

The National Assembly should do more than suspending approval of further borrowings. Members should interrogate how the previous loans were utilized and come up with strategies for plugging leakages and sanctioning recklessness. It must take a deep look at the securitization proposal whenever it comes to their attention and ensure it does not go through the conveyor belt but through the crucible. They must desist from the routine indulgence of increasing budget proposals to feather their nest; and most importantly should stop the practice of tampering with provisions for critical projects which they often reduce and transfer to constituency or social projects.

The Federal Government must summon courage to defy opposition to the removal of subsidy on petrol and terminate the subsidy regime forthwith. It must immediately set up structures to bring more eligible entities into the task net and stem multiple taxing of existing entities. Theft and shut-ins in the petroleum sector must be tackled to ensure stability in revenue flow while other critical sectors should be enabled to contribute significantly to the national treasury. It does not require further emphasis that the cost of running government should be drastically cut down in line with the flow of the revenue streams. There must be visible issued or enforced best practice measures for revenue collection and debt control by the Fiscal Responsibility Commission in conformity with it’s statutory mandate as outlined in Section 3(1)(b) of the Fiscal Responsibility Act 2007.

Government should take a second look at the recommendations made in 2022 by the Lagos Chamber of Commerce and Industry on the issue of securitization corporate assets and commercializing real estate assets to raise revenue for government as well as boost foreign exchange inflows for the country. The chamber had argued that Nigeria is an asset-rich nation with hundreds of large state-owned companies, valuable parcels of land and built structures in prime commercial locations which are grossly underutilized and contribute too little to the country’s fiscal and financial situation because their market values are currently not known. It suggested the need to replace existing debt stocks with asset-linked debt to ease the debt servicing burden; attract greenfield FDI into publicly listed state-owned companies; and generate new revenue streams from commercialized real estate portfolios. We share in that proposition.  

There is absolutely no sense in borrowing to fund consumption. The time to stem deficit budgeting is now, if the future is not to be cripplingly encumbered. 

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