This is according to data from budget implementation reports for the third and fourth quarters of 2015; the four quarters of 2016, 2017, 2018, 2019, 2020; the first three quarters of 2021; and the first four months of 2022.
According to Investopedia, a budget deficit occurs when expenses exceed revenue.
An analysis of the reports on the Budget Office of Nigeria’s website revealed that Buhari’s administration had spent at least N54.98tn on budget implementation since its inception but has only financed this spending with N24.39tn, leaving a deficit of N30.58tn.
A breakdown of some of the expenses revealed that the present administration had spent at least N23.66tn on personnel costs, pensions, overhead costs, presidential amnesty programme, other service-wide votes, and special interventions.
A minimum of N14.13tn has been spent servicing domestic and foreign debts, and at least N10.47tn has been spent on capital expenditure.
According to the reports, this deficit financing has been largely financed by government borrowing. The budget implementation report for Q4, 2015 said, “The FGN has arranged to raise short-term credit from the CBN through the mechanism of Ways and Means subject to a ceiling of 12.5 per cent of FGN’s revenue.
“This amount will be retired and therefore not considered as new borrowing outside the borrowing approved to finance the budget deficit. However, due to current fiscal challenges, the CBN had agreed to increase the Ways and Means advances threshold hence the FGN’s ability to raise N615.96bn from this source.”
Since allowance for raising the ceiling was made, total borrowing from the CBN has hit N19.01tn in April 2022 from N648.26bn as of June 2015.
Also, the nation’s total debt profile hit N41.06tn as of March 2022 from N12.12tn, according to the Debt Management Office.
A document titled ‘Public Consultation on the Draft 2023 – 2025 MTFF/FSP’ presented by the Minister of Finance, Budget & National Planning, Mrs Zainab Ahmed, said, “Revenue generation remains the major fiscal constraint of the federation. The systemic resource mobilization problem has been compounded by recent economic recessions.”
Recently, the Monetary Policy Committee of the Central Bank of Nigeria raised concerns over the nation’s debt sustainability. It said the Federal Government’s debt profile was worrying and noted that there was a need for it to urgently diversify its revenue base.
Commenting on the story, economists stated that a high deficit was not good for the economy and might cause inflation, recession, and slow down growth.
Speaking to The PUNCH, an economic expert and seasoned academic at the University of Uyo, Professor Akpan Ekpo, said, “This shows that expenditure has eclipsed the revenue, because they have to borrow, which is why there is a deficit.
“They can’t raise enough domestic resources to finance spending. That gap is deficit. Talking about GDP, by the rules, it should not be more than a certain percentage of GDP, but it has exceeded that. And when you borrow, you have expectations of borrowing because if you are not transparent, we don’t know what you are borrowing for.
“If you are borrowing to finance recurrent and overhead, it is not good for the economy. If you borrow to finance capital projects, in the long run, even if you have a deficit, it will have a positive multiplier effect. The deficit, if it is used to finance recurrent, is problematic to the economy.
“One way of solving that is to raise more of domestic revenue or cut down on expenditure that is not needed, especially, the cost of governance. There is a need to check the expenditure profile and cut down on it. Or we could do expenditure switching, where unimportant items are switched with important items.
“We are spending more than we can raise resources and we are not spending it on hard infrastructure.”
Associate professor of Economics at the Pan-Atlantic University, Lagos, Olalekan Aworinde, added that the deficit was being financed by either government borrowing, sales of government properties, or printing money.
According to him, any of these options had implications for the economy. He stated, “Loans can be good and can be bad. A loan is good if it is used for productive expenditure, but if it is used for recurrent expenditure or consumption expenditure, this is not bringing back any returns.
“If the component of this deficit is majorly recurrent expenditures, it shows that we are unlikely to have any growth. There isn’t going to be any revenue coming out from there. The implication of this is that we are likely going to have stunted growth. Stunted growth in the sense that we are not likely going to have an increase in the total values of goods and services that are produced in the country.
“If care is not taken, we are likely going to slide into recession.”
He added that financing the deficit through sales of government properties would mean the government was reducing its asset base, which did not speak well for the economy.
Buhari Reverses Approval For Mobil Acquisition By Seplat
President Muhammadu Buhari, on Wednesday, reversed his authorisation for the acquisition of the entire share capital of Mobil Producing Nigeria Unlimited by Seplat Energy Offshore Limited.
The move puts the Presidency on the side of the Nigerian National Petroleum Company Limited which declined the $1.3bn transaction.
On Monday, a statement by the Special Adviser to the President on Media and Publicity, Femi Adesina, revealed that President Buhari consented to the acquisition of Exxon Mobil shares by Seplat Energy Offshore Ltd.
According to the Presidency, Buhari authorised the move in his capacity as Minister of Petroleum as a way to attract foreign direct investment to the country.
But giving an update on the issue, the Senior Special Assistant to the President on Media and Publicity, Garba Shehu, told our correspondent that Buhari had reversed the decision and the previous misunderstanding was because the “agencies involved in (the) decision had not coordinated well among themselves.”
Earlier, Shehu who spoke to an online publication said the President’s reversal of his earlier approval was in line with the position of the Nigerian Upstream Petroleum Regulatory Commission.
According to him, the confusion over ExxonMobil shares was because “the various agencies involved in the decision had not coordinated well among themselves and having looked at all of the facts with all of the ramifications, the president decided the position of the regulator is to be supported.”
NUPRC had, in a statement over Buhari’s earlier approval of the assets’ acquisition, said, as the sole regulator, it is the one that could deal with such matters. It, therefore, said the status quo remained.
The state from the Chief Executive of the NUPRC Engr. Gbenga Komolafe, said the Commission, in line with the provisions of the Petroleum Industry Act 2021 is the sole regulator in dealing with such matters in the Nigerian upstream sector.
NUPRC said, “As it were, the issue at stake is purely a regulatory matter and the Commission had earlier communicated the decline of Ministerial assent to ExxonMobil in this regard. As such the Commission further affirms that the status quo remains.
“The Commission is committed to ensuring predictable and conducive regulatory environment at all times in the Nigerian upstream sector.”
Seplat Energy Plc had, last February announced an agreement to acquire the entire share capital of Mobil Producing Nigeria Unlimited from Exxon Mobil Corporation, Delaware for $1.28bn.
The transaction involved the acquisition of ExxonMobil Nigeria’s entire offshore shallow water asset; an established, high-quality operation with a highly skilled local operating team and a track record of safe operations.
The Nigerian National Petroleum Company Limited, however, has a pre-emptive right over the asset and had last month won a court decision temporarily blocking Exxon Mobil Corporation from selling assets in Nigeria to Seplat Energy Plc.
A Judge in Abuja had granted NNPC an “order of interim injunction” on July 6, 2022, barring Exxon Mobil “from completing any divestment” in a unit that ultimately operates four licenses in Nigeria.
Debt Servicing To Hit N10.43tn, Economists Slam FG
The Federal Government has projected that debt servicing will cost N10.43tn by 2025, according to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.
This is a 182.66 per cent increase from the N3.69tn budgeted for debt service in 2022.
Multilateral agencies and economists have constantly warned the Federal Government about the rising cost of debt service, which can trigger a crisis for the country.
However, the Minister of Finance, Budget and National Planning, Dr Zainab Ahmed, and the Director General of the Debt Management Office, Patience Oniha, have insisted that the country does not have a debt problem but a revenue challenge.
In a document by the DMO DG recently obtained by our correspondent, the DMO stated that high debt levels would often lead to high debt services and affect investments in infrastructure.
According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”
In the document, she stressed the need for debt sustainability, which she defined as the ability to service all current and future obligations, while maintaining the capacity to finance policy objectives without resort to unduly large adjustments or exceptional financing such as arrears accumulation, debt restructuring, which could otherwise compromise the economy’s stability.
READ ALSO: Amid Rising Debt, Subsidy Cost Jumps By 370%
Speaking at the launch of the World Bank’s Nigeria Development Update titled, ‘The urgency for business unusual,’ held recently in Abuja, the finance minister had admitted that Nigeria was struggling to service its debt.
She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”
The International Monetary Fund had earlier warned that debt servicing might gulp 100 per cent of the Federal Government’s revenue by 2026 if the government failed to implement adequate measures to improve revenue generation.
According to the IMF’s Resident Representative for Nigeria, Ari Aisen, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts might wipe up the country’s entire earnings in the next four years.
Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.
“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”
Less than two months after Aisen’s warning, the finance minister disclosed that Nigeria’s debt service cost surpassed its revenue in the first four months of this year.
Debt service gulped N1.94tn between January and April 2022, as against a retained revenue of N1.63tn.
According to a recent PUNCH report, the Federal Government exceeded its debt service allocation by N1.15tn for the period between January and November 2021.
A copy of the public presentation of the 2022 approved budget by the finance minister showed that the Federal Government allocated N3.32tn for debt servicing in 2021.
However, the minister’s presentation document showed that a total of N4.2tn was spent on debt servicing in 11 months, indicating a difference of N1.15tn or 37.9 per cent of the money allocated for debt servicing for the period.
The PUNCH also reports that Nigeria’s debt servicing bill increased by 109 per cent, from N429bn in December 2021 to N896bn in March 2022.
A report by the Nigerian Economic Summit Group and the Open Society Initiative for West Africa has disclosed that Nigeria and 10 other Economic Community of West African States countries are currently in debt distress based on debt sustainability analysis.
The 10 other countries are: Benin, Burkina Faso, Cabo Verde, the Gambia, Ghana, Guinea Bissau, Liberia, Niger, Senegal, and Togo.
It was further disclosed in the report that public debt accumulation for these countries was becoming unsustainable and needed to be addressed to avert the looming debt crisis.
The report warned that the possibility of a debt crisis in Nigeria would adversely affect public and private investments, as well as other sectors of the country.
The World Bank recently said that Nigeria’s debt, which might be considered sustainable for now, was vulnerable and costly.
According to the Washington-based global financial institution, the country’s debt was also at risk of becoming unsustainable in the event of macro-fiscal shocks.
Experts have kicked against the Federal Government’s proclivity for debt, which they have described as unsustainable.
Economists slam FG’s debt proclivity
The Chief Executive Officer of Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said that the Nigerian economy had been characterised by diverse economic vulnerabilities, which included rising public debt and debt service burden.
He said, “Debt service to revenue ratio for the first four months of the current year is over 100 per cent. The implication of this is that the actual revenue of the government over the period is not sufficient to service debt. Therefore, financing of the operations of government – personnel cost, overhead cost, capital expenditure, and even part of the servicing of the debt – will have to come from additional borrowing. These portend severe vulnerabilities for the Nigerian economy.”
A Professor of Development Macroeconomics at the University of Lagos, Prof Olufemi Saibu, criticised the government for over-borrowing.
He said, “I think we are over-borrowing. We continue to rely on international benchmarks, which make us lazy in terms of revenue generation.”
Prof Saibu urged the government to lessen its huge expenditure costs and channel money into more productive sectors of the economy.
“With our current heavy infrastructure debt financing and the low productivity in the local economy, the government needs to find a way of reducing its expenditures. We need to redirect the government’s finances to areas that are productive and borrow less for consumption,” he said.
In addition, Prof Saibu said that the government needed to look inwardly and borrow domestically rather than externally, which would lessen the burden of debt service.
He said the government should stop saying the country had the capacity to borrow more, and refrain from ballooning already outsized debts.
Prof Saibu advised that the government should engage the private sector in the area of infrastructure development to reduce the weight on the public sector.
A Professor of Development Economics at Babcock University, Prof Adegbemi Onakoya, said that borrowing was not an issue but the value obtained from it.
He also said that Nigeria had a revenue problem, which had made the country rely more on debt financing.
Prof Onakoya also said that there was a problem when money borrowed was not judiciously applied for productive purposes or programmes that would help production.
Nigeria’s Economy On Brink Of Collapse, NECA Raises Alarm
The Nigeria Employers’ Consultative Association, NECA, on Sunday in Lagos, raised the alarm that the nation’s economy is on the brink of collapse, warning that spiralling inflation, rising energy cost, scarcity of FOREX, the dwindling value of the Naira among others, are bleeding the economy.
The Director-General of NECA, Mr. Wale Oyerinde, lamented that the economy was under the weight of an almost comatose aviation sector, stuttering education system, rising debt, depleting foreign reserve and rising fuel subsidy expenses, among others.
The newly-appointed D-G of NECA advised the Federal Government to employ a holistic and multi-pronged approach towards resolving the challenges faced by the nation.
According to him, “The nation is currently faced with multiple challenges.
“(It’s) a dire combination of spiralling inflation, rising energy costs (aviation fuel, diesel, etc.), scarcity of FOREX, dwindling value of the Naira and an almost comatose aviation sector.
“Also, with a stuttering education system, rising debt, depleting Foreign Reserve and rising fuel subsidy expenses among others, that threatens to lay bare the country’s economy, there is no better time for the Government to reappraise current economic policies and deepen its engagement with the organized private sector.
“While Government’s effort to salvage the economy is commendable, there is, however, a need for a more holistic approach to resuscitate the stuttering economy.
“Being dependent on crude oil for about 90 per cent of its foreign exchange earnings and 80 per cent of its budgetary revenues, Nigeria has always lived dangerously on the precipice, with a major chunk of its revenue dependent on the complexities of global crude demand and supply.
“A dangerous blend of self-destructive tendencies, insecurity and fiscal and monetary policy inconsistencies have also conspired to make the situation worse.
“While revenue continues to shrink, the nation continues to dig its feet deeper into debt.
“At different times over the past few years, various international bodies including the World Bank, International Monetary Fund and the World Trade Organization have warned about the excessive nature of the country’s borrowing.
“While some stakeholders have canvassed that the revenue to GDP ratio of the country is healthy, a recent announcement by the Minister of Finance, Budget and National Planning that the revenue to debt service ratio is in the negative, calls for urgent concern.
“In April, the World Bank warned that the rising cost of fuel subsidy could significantly impact public finance and pose debt sustainability concerns.
“Alas, this projection is almost happening. The Fiscal Performance Report released recently by the Federal Government confirmed the accuracy of these projections.
“The combination of a struggling aviation sector and roads taken over by bandits have also conspired to fuel the situation, leading to rising inflation at 18.6% (according to the NBS).
“These have continued to worsen the promotion of Commerce and the increase the rate of de-industrialization of some regions of the country.”
The DG of the umbrella body for employers in the country, while recommending how to deal with the multi-face challenges, called for “a deliberate and economic priority influenced approach and wide consultation with Stakeholders should commence, with the view of harvesting alternative policy options to re-energize all sectors of the economy.
“While the challenges of revenue shortage are acknowledged, burdening businesses with new taxes or levies will be counter-productive and self-destructive action.
“Over-burdening already burdened businesses will only lead to business closure and an escalation of job losses with consequential effects on our social and economic stability.
“Government should, in the short-term widen the tax net, reduce wastages in governance, and focus on economic projects that will stimulate the Nigerian economy and guarantee an enabling environment for businesses to operate.
“An enabling environment for local businesses will create the platform for new foreign direct investment, which could increase FOREX inflow into the country.
“In the medium term, the Federal Government should, as a matter of urgency, fix the four national refineries and encourage the development of Modular ones as a precursor to total removal of fuel subsidy.
“With over N5 trillion budgeted for subsidy payment in 2022, an amount larger than the budget for education and agriculture, this is unrealistic and unsustainable.
“Economic interventions aimed at improving living standards (to stimulate consumption) and Enterprise sustainability (to promote job creation) should be implemented.
“While FOREX scarcity persists, allocation of the available FOREX to manufacturing and other productive sectors of the economy should be given priority.”
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