The appropriation act looks difficult on paper. We need someone with special skills to make meaning out of it
President Muhammadu Buhari has signed into law the last budget of his administration. Not only are there worrying issues in some of the basic assumptions in the 2023 Appropriation Act, but many Nigerians also find it difficult to understand the fundamentals. According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, “At N6.31 trillion, debt service is 29% of total expenditure. This is 71% higher than 2022 estimate as it includes interest payment of N1.2 trillion for Ways & Means.” As troubling as that may sound, it does not even tell the whole story of the mess the country is in. The Director General, Debt Management Office (DMO), Patience Oniha said that if the new borrowings and issuance of promisory notes were included, “it will be safe to say that we will be looking at N77 trillion” of national debt.
The baseline assumptions in the 2023 budget are based on the benchmark price of $75 per barrel of crude oil and an estimated production capacity of 1.69 million barrel per day. Given that global forecasts for oil price in 2023 currently range between USD85 and USD100 per barrel, the approved benchmark price could be considered conservative. But this potential upside may be dampened by the fact that over the last few years actual production volumes have undershot budget figures with a negative impact not just on government revenues but foreign exchange supply.
With the total planned expenditure of N21.8 trillion for 2023 more than double the projected revenues of N10.5 trillion, the federal government is planning a budget deficit that far exceeds expected income. Yet, despite this huge funding gap, it allocates a scandalous amount of money to subsidise petrol consumption. The federal government envisages spending N3.4 trillion up to mid-2023. Annualising the figure, that would be N6.8 trillion. When pro-rated, for the first six months of the year, the federal government is planning to spend 124% of its total expected revenue on fuel subsidy and debt service alone. What President Buhari and his administration has consistently failed to appreciate is that for as long as the subsidy remains, the incentive for private and public actors to game the system is strong.
Meanwhile, actual revenues invariably fall short of budgeted amounts almost every year. There is currently no strong basis to believe that 2023 will be different. Of particular concern are the Government Owned Enterprises (GOE) and independent revenues. With a combined expected amount of N5 trillion, they represent 48% of the 2023 revenue budget. However, by the end of November 2022, GOE and independent revenues had only achieved 37% (N639.3 billion) and 50% (N1.3 trillion) of their respective amounts budgeted for the year. Similar budget shortfalls in 2023 would have serious consequences for the government and, by extension, the economy.
Despite the debt burden being a significant strain on the nation’s resources, the federal government plans to borrow even more in 2023. Such borrowing plans are likely to create a problem not just for the next government but also for future generations. The unrealistic foreign exchange rate assumption of N435 per USD, which is less than 60 per cent of the growing rate at the parallel market has its pros and cons from a budget standpoint. But it is a signal that the Buhari administration intends to continue with multiple exchange rates and the associated incentives for sharp practices whilst it remains in power. Unfortunately, the 2023 budget is still replete with the usual frivolous items that will be funded from borrowed money. More disturbing is that most of these frivolous proposals escaped the scrutiny of the National Assembly, the arm of government which has the power of the purse.
Come 29th May, the country will have a new leader. It is unclear what effect the general election and transition to a new government will have on budget performance – both in terms of revenues and expenditure. But one thing is clear: Nigeria needs a new president with the technical know-how to make the right choices, as well as the will and skill to implement accordingly.
