Postscript by Waziri Adio
President Muhammadu Buhari tooted his own horns and offered a grim sketch of Nigeria’s public finance when he presented the 2023 budget proposals to the National Assembly on Friday. This is his last full-year appropriation bill, though he will be in the saddle for only five months in 2023. By frontloading the speech with the achievements of his administration in physical infrastructure and critical legislations, the president seems to have started saying his goodbyes and appears eager to actively frame the narrative about his soon-to-lapse stewardship.
Beyond what the president tried to do, the budget presentation speech provided a reminder, in case any is needed, about the current state of Nigeria’s finances, which is clearly in dire straits. The unusual long campaign period for the 2023 general election offers a great opportunity not to just restate the obvious but also for a robust contest of concrete ideas and specific plans about the exact things that can and should be done to get Nigeria out of the present pass.
But instead of a festival of fresh ideas, what we have been treated to, so far, is the usual fare: a deluge of catch-phrases and soundbites and superficialities and some low-grade entertainment. These have been generously complemented with the optical games that politicians play to signal strength and with carefully constructed but barely interrogated profiles. To be sure, all these were not unexpected as these have been the standard fare of our campaigns for a while. But we need more because the times demand more. We are in an unusual place, at an unusual time. The usual approach to campaigning and politicking should not suffice for a time like this.
There is enough in Buhari’s presentation to the National Assembly on Friday to focus or refocus the mind on the depth of the work to be done on our public finance and, by extension, on the larger economy. Without a doubt, there is a lot to hold the president and the ruling party to account for, even after making generous allowance for the impact of the pandemic, the fluctuations in oil prices, and the war in Ukraine. But more importantly, the presentation should steer us all—the candidates, their parties, the electorate and the larger populace—towards deep deliberation about the tough options before us, the attendant costs and trade-offs, and ultimately the choices we need to make on key economic issues.
The president provided a review of the performance of the ongoing 2022 budget and that foreshadows most of the concerns in the proposed 2023 budget. As at end of July 2022, the Federal Government (FG) had spent N8.29 trillion but its total retained revenue was just N3.66 trillion. Retained revenue was a mere 44% of expenditure. This also means within seven months, the FG had incurred a deficit of N4.63 trillion which is 63% of the N7.35 trillion projected deficit in the amended 2022 Appropriation Act. To plug the hole, N4.12 trillion was borrowed, which contributed in bumping public debt to N42.8 trillion as at June 2022.
It is important to note that the expanding deficit and debt occurred at a time when we should have an oil windfall. Actual price of oil consistently surpassed the oil benchmark price of $73/barrel in the amended budget. We should have surplus of at least $30 on each barrel of crude oil. In fact, crude oil sold for $121/barrel in March. However, a combination of a surge in oil theft and petrol subsidy ensured that Nigeria is about the only oil-producing country not enjoying a boost from historically high oil prices. As at June 2022, N1.59 trillion had been sunk into petrol subsidy alone.
Quite noteworthy is that N3.09 trillion had been spent on debt service by July 2022. This is 78% of N3.96 trillion appropriated for debt service for the whole year in the amended 2022 budget. It also amounts to 84% of FG’s retained revenue of N3.66 trillion for the same period. As at July 2022, FG had spent N2.87 trillion on salaries, pensions and overhead and released N1.48 trillion for the capital budgets of the ministries, departments and agencies. This puts debt service alone at 107% of salaries, pensions and overheads; and debt service at 208% of released capital budget.
The concerning issues in the ongoing budget cast long shadows on the proposed one. The president has proposed a N20.5 trillion budget, which is 18.5% higher than the N17.3 trillion appropriated for 2022. The projected revenue for the FG (including 63 government-owned enterprises, GOEs) is N9.73 trillion, which is a mere 47.5% of the proposed budget. The budget deficit has expanded, both in absolute numbers and as percentages.
The proposed deficit for 2023 is N10.78 trillion or 52.5% of the budget, meaning that total government revenue is not expected to cover up to half of the budget. The deficit this time comes to 4.78% of GDP as opposed to the 3.99% for the 2022 amended budget, both above the 3% threshold set by the Fiscal Responsibility Act. To plug the gap in the 2023 budget, FG plans raise the N10.78 trillion through new loans of N8.8 trillion, N206 billion from privatisation and concessions, and drawdown of N1.77 trillion in concessionary loans.
A breakdown of the projected revenue shows that FG hopes to get N1.92 trillion as its share of oil revenue. This is 19.7% of the projected revenue. This is a mix-bag: on the positive side, it indicates that FG is now less dependent on oil for funding its budget; but on the less cheery side, it underscores the precipitous decline in the value of a sector that used to account for more than 70% of government revenue, and coincidentally not a time of low oil prices. On a brighter note, non-oil tax revenue and independent revenue are projected to bring in N2.43 trillion and N2.21 trillion respectively.
The little hope held out by diversification of revenue sources is quickly eclipsed by the prominence of debt service in the proposed expenditure. FG proposes to spend N6.5 trillion on debt service and sinking fund in 2023. This means that debt service alone is 31.7%, almost a third of the total budget for FG and its enterprises. In the same appropriation bill, N6.19 trillion has been proposed for personnel, pension/gratuities and overheads while N5.35 trillion is indicated against capital expenditure.
Debt service is thus 105% of personnel and overheads combined and 121.5% of capital expenditure. Also, debt service will consume 66.80% of the N9.73 trillion revenue projected to be retained by FG and its enterprises. So, for every N100 that FG hopes to get as revenue in 2023, N66 or about two-thirds will go to debt service alone. And bearing in mind that revenue hardly performs to expectation, FG’s fiscal position may get worse. To get a fuller picture of the approaching fiscal cliff, hard expenditure (personnel and debt service) is N12.57 trillion or 118% of projected revenue. This means that government’s revenue will still fall short if all money that comes in is devoted to just salaries and debt service, and with zero release for pension/gratuity, overhead and capital.
Despite the spirited attempt by government to downplay it, debt has become a major burden for Nigeria. We have landed in a vicious bind where we need to borrow to fund not just infrastructure as it is being projected but to meet vital obligations, including some hard expenditures like salaries. And the more we borrow, the deeper we sink into debt and the higher the quantum of resources needed to service debt, and on and on. It is a vicious cycle, one that we must break. As witnessed in the first four months of 2022, we may even need to borrow to service debt when revenue falls below debt obligations.
Nigeria’s moderate debt-to-GDP ratio may offer some comfort but it is not a particularly useful metric in our case. Debts are serviced and repaid from government revenue, not from the country’s GDP, and a significant portion of government revenue is now going to servicing debts. This crowds out resources available for other more pressing needs. Also, the fact that we are not defaulting yet does not mean all is well.
To be sure, we have a revenue problem. But to continue to deny that we have a debt problem is akin to denying the existence of the sun by blocking it with your palms. We also have a major spending problem as evident in leakages, wastes and misplaced priorities. In trying to fix Nigeria’s public finance, we need to acknowledge this trifecta and devise practical and not necessarily painless interventions for tackling them.
What we need in this long campaign season is intelligent discussions around our public finance and our economy, as well as in other areas critical to human and national development. To make a dent on the economic front, we need to grow our GDP, we need to multiply government revenue, we need to reduce the debt burden, we need to block leakages and spend right, and we need to expand the productive capacities of people and our businesses. Yes, there is a place for sound situational and comparative analyses. But what we need more from the candidates and their parties are the specific and practical plans that will address the binding constraints to Nigeria’s development.
We don’t need general statements like “I will increase revenue”, “I will reduce the size of government,” “I will increase oil production and revenue” etc. Let’s have and discuss the details: how do you plan to increase revenue and in what quantum? Do you plan to expand the tax net or increase tax rate or both and how do you plan to do that and by what percentage and in what order? What exactly does reducing the size of government mean: sacking workers, eliminating or collapsing agencies, freezing some expenditure lines, and if so, how much will that cost and how much will you save and what is the larger implication? Based on current realities, how do you plan to increase oil production and the share of federation oil and how do you plan to address oil and petrol subsidy?
The politicians and their besotted supporters have either been busy with attacking one another online or engaging in the optical game of my-crowd-is-bigger-than-yours offline. Attacks, physical and verbal, are anti-democratic and dangerous. Democracy is essentially about freedom, and it is important to respect and protect the choices of others. Whoever wins will have to take some tough decisions. There is no better time to start discussing their understanding of the challenges and their proposed solutions and to start crowdsourcing for practical ideas than the electioneering period.
But politicians will want to avoid talking about tough choices because those are not necessarily vote winners. On the campaign trail, politicians will want to get away with either saying nothing or just mouthing slogans or merely parroting half-digested ideas or simply appealing to base sentiments. If we allowed that in the past, we should not this time around because of the scale of challenges at hand. If our alibi was that we didn’t have enough time in past elections, that excuse is no longer available. Now, by virtue of Electoral Act 2022, we have time, plenty of time to listen to those who have put themselves forward, and to interrogate them and their ideas and plans.
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