The federal government determination to borrow to fund the 2022 budget expenditure experts have argued may not bode well for the economy already facing serious headwinds. In this report Ibrahim Apekhade Yusuf and Funke Cole examine the issues
It’s the economy, stupid! In the view of financial analyst and Economist who have attempted a prognosis of the lingering economic crisis, to say Nigeria is confronted with a most uncertain but bleak future, is clearly an understatement. Truth is, the economic woes assailing the country currently leaves nothing to cheer about if the parlous state of the economy is anything to go by.
The devil is in the details!
Indications are that the 2022 budget has a huge deficit with the federal government banking heavily on loans to meet its obligations thus further putting the Nigerian economy under fiscal pressure.
It would be recalled that President Muhammadu Buhari’s government has relied heavily on borrowing to sustain its budget cycles thus far, with the Central Bank of Nigeria (CBN) serving as lenders of last resort to the the Federal Government.
A sneak review of the 2022 budget
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, has unveiled the federal government’s strategic initiative for a robust revenue generation that would meet the federal government’s N10. 74 trillion target, with which to fund the 2022 budget.
Mrs. Ahmed spoke a fortnight ago at the federal government’s 2022 Budget Public Presentation, in Abuja, that revenue generation remained the major fiscal constraint of the federal government and that her team would vigorously pursue the administration’s Strategic Revenue Growth Initiatives to improve its fiscal position in the budget.
Rising debt stock
However, the current (non-debt) spending, which is estimated at N6. 91 trillion, is 40 per cent of total expenditure and 20 per cent higher than the 2021 budget.
At N3. 8 trillion, debt service is 22 per cent of total expenditure and 34 per cent of total revenue.
The 2022 budget has a deficit of about N6.25tn, approximately 3.39 percent of the country’s GDP.
The budget also set aside N59 billion for counterpart funding for railway projects including: Lagos-Calabar, Calabar-Lagos, Ajaokuta-Itakpe, Port Harcourt-Maiduguri, Kano-Katsina, Jibiya-Maradi in Nigeria Republic, and Abuja Itakpe and Aladja(Warri) – Port and Refinery/Warri New harbour.
From available information, the budget deficit is to be financed mainly by borrowings, with targets from domestic sources – N2. 57 trillion; foreign sources-N2. 57 trillion; multi-lateral/bi-lateral loan draw-down N1. 16tn; and privatisation proceeds, N90. 7 billion.
Implication of borrowing
According to Ndubuisi Nwokoma, a Professor of Financial Economics, “We’re borrowing and have high level of budget deficits. When you jack up the budget from N16. 39 trillion to N17.127 trillion and you are borrowing with high level of deficit, it calls for concern.”
Nwokoma, who also doubles as Director of Centre for Economic Analysis and Research at the University of Lagos, while speaking in a monitored programme on Arise Television recently, further hinted that at N3. 8 trillion for debt servicing, which is close to N3. 16 trillion projected oil revenue, “we still have the subsidy concerns to deal with. It shows the budget is ‘highly leveraged.’ This is not just for this year, this has been happening for sometime now.”
The economist noted that the projected revenue of N10.1 trillion from oil and non oil sector, which was often not met, left Nigeria with excessive borrowing.
“How do we finance the deficit? Fiscally, we have to borrow about N5.01 trillion, alongside other project-tied loans, in addition to proceeds from the sale of government assets.”
Following these concerns, those knowledgeable about the economy also expressed worry that the government was still paying lip service to cutting down cost of governance.
They noted that the government had a spending problem, not revenue issue.
“Even if the revenue agencies generate N30 trillion, it would be spent with less economic impact on the lives of the people. Is it not in the Federal Ministry of Agriculture that made budget for mosque from the ministry’s budget,” a Political Economist and Associate Consultant to the British Department for International Development, DFID Celestine Okeke noted in an interview.
“That would tell you that our problem is not revenue but ensuring a people-oriented spending that impacts the lives of the people.”
He stressed that public finance management was still a major issue in the federal ministries, departments and agencies of government.
“Hope you have seen the revelation from the auditor-general of the federation in some government agencies? What does that tell you about our public finance management? Currently, the national procurement committee is not there and it is a huge concern,” he noted.
Speaking further on the budget, an economist, banker and former gubernatorial aspirant in Abia State Alex Ottih expressed concern about low productivity level of the Nigerian economy and over-reliance on oil.
“There is no doubt that the country has a big problem, which is structural and must be resolved for the economy to start moving again in the right direction. The country has a problem with productivity.
“A situation where the country, for more than half a century, relies on a single product, which the populace adds little or no value to, for a large chunk of its foreign exchange earnings is not sustainable.
“No matter what it takes, the country needs to expand her productive base by getting more people to participate in economic activities.”
The 2022 budget deficit is slightly above the 3 per cent ceiling set by the Fiscal Responsibility Act of 2007.
The deficit is expected to be financed by new borrowings, financial proceeds and drawdown on loans secured for specific projects.
Non-debt recurrent expenditure of N6.83tn recurrent expenditure is the largest expense item, with 60 per cent relating to personnel costs at N4. 11 trillion.
Discordant tunes over excess borrowing
Not many Nigerians are persuaded that the government means well with the kind of borrowing being witnessed under the current regime.
In the view of Prof. Sherifdeen Tella, renowned Economist, he noted that lamentably, “The 2022 budget is based largely on borrowing which is not good because if they remove the money from servicing of debt, outstanding expenditure, what will remain will be so small. Its so unfortunate, and the legislature is supporting them. If it happens that international price of crude oil increases, it will reduce the amount that we need to borrow which will assist them to have more revenue. Economy is already in serious problem.”
On what the government should do address the funding gap, Tella, who is currently of the Department of Economics at the Olabisi Onabanjo University, Agoiwoye, Ogun state, advised that the government should cut down on expenditure. “There are some programmes they have to delay. Then, they should think of how to generate income. Now, they are also thinking of how to increase the tax to people who are already over taxed which is also not good. There must be some ways of generating money.”
For Mazi Okechukwu Unegbu, Managing Director/CEO at Maxifund Investment Plc, “There is nothing wrong in borrowing, to generate income. But, we should not keep depending on borrowing. We should look inward and see what we can do for ourselves, instead of depending on foreigners. We should begin to make things locally, produce things locally. For example toothpicks are still being imported. Let’s punish ourselves, make sacrifices to be able to gain. Let’s become productive.”
According to Prof. Chris Onalo, Registra/Chief Executive, Institute of Credit Administration, it is regrettable that the country has embarked on borrowing spree over the years. “We are in the regime of borrowing, there’s huge infrastructure deficit, unemployment is in the rise. There’s need for employment generation, economy needs to be further stimulated to give way for emerging industries to either come on stream or the existing corporations can widen the scope of their business.”
While justifying borrowing, the ICA boss said, “Borrowing money actually isn’t wrong, but it should be for capital intensive projects. Government should endeavour to utilise the money borrowed. If the money is invested totally for the purpose for which it was borrowed, Nigeria will be able to pay off its debts otherwise the borrowing is part of developmental phenomenon by developing countries. I’m looking forward to this regime putting in place mechanisms that will discourage corruption, get quick rich attitude by public servants.”
Echoing similar sentiments, Alhaji Muktar Muktar, President, Trusted Shareholders Association of Nigeria, maintained that the government should apply stick and carrot approach. “It is actually not wrong to borrow because it is difficult to meet budget, or to fund budget because the internal revenue cannot handle the budget.”
Pressed further, the shareholders boss who revealed that the country generates about N5+trillion per year from crude oil sales or more including about N3 billion from Customs, however regretted that such acruals are not enough to offset the huge wage bill the country requires to run efficiently hence the government has to resort to borrowing. “We have N4.5trillion to balance the debt on our head and use N4.3 trillion to pay interest on loan, and to pay some part of the loan. if you put a cumulative of them, you will know there’s not much left.”
While further justifying the need for borrowing, Mukhtar said it’s not a bad idea in its entirety. “Borrowing is not bad as there’s no country that can actually survive without borrowing. But in a situation where corruption is too much, revenues are stolen, a lot of bunkering is going on, people erect all sorts of illegal refineries to steal oil. People are cruel to the government. Nigeria is a very difficult country. Go and check the taxes that are collected, they go into private pockets, taxes that are supposed to go to the government.”
Caveat to borrowing
Mukhtar holds the view and very strongly too that when a government borrows, it should know the terms of its borrowing. “But to finance 50 or 60% of the budget is rubbish, borrow for capital intensive project instead. It’s a good omen to every country to borrow. But, when you borrow money and people stealth money, it doesn’t make sense.
If this issue of corruption is ongoing there’s no way any incoming government can finance budget to the tune of 80% or 90%.”
On the way forward, Mukhtar suggested a number of antidotes. “Our entire law system must begin to work. We must have a radical approach to tackling corruption. Check our National Assembly members, they channel the constituency projects to ministries agencies that will help them loot the money. Go and see. National Assembly will not agree to put to law that will stop things like that.
They should reduce the cost of governance. It does not make sense for the budget where current expenditure surpasses capital expenditure. Look for projects that will bring revenues to government, and improve lives of people.”