Posted by Godwin Onyemaechi
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed yesterday sounded the alarm bells as she revealed that the country’s debt service cost in the first quarter (Q1) 2022 was N1.94 trillion, N310 billion higher than the actual revenue received during the period.
Also, Ahmed projected a total of N6.72 trillion as full-year budget for petrol subsidy payment in 2023, if the country decides to continue with the policy that had been identified as a drain on the economy.It also emerged yesterday that the federal government spent more to service debt in the first quarter (Q1) of 2022, than the actual revenue it earned during the same perio
The Minister of Finance disclosed these when she unveiled the Medium Expenditure and Fiscal Strategy Paper (MTEF-FSP) in Abuja.With debt service cost outstripping the country’s revenue, it is a clear indication of dangers ahead and policymakers must be more than willing to implement the much-needed reforms to save the economy.
The minister explained: “The aggregate expenditure for 2022 is estimated at N17.32 trillion, with a pro rata spending target of N5.77 trillion at the end of April.“The actual spending as of April 30th was N4.72 trillion. Of this amount, N1.94 trillion was for debt service, and N1.26 trillion was for personnel costs, including pensions.“As at April, N773.63 billion had been spent on capital expenditure. As of April 2022, FGN’s retained revenue was only N1.63 trillion, 49 per cent of the pro rata target of N3.32 trillion
She affirmed that the federal government’s share of oil revenue was N285.38 billion, representing 39 per cent performance while non-oil tax revenues totalled N632.56 billion — a performance of 84 per cent.Ahmed also projected that should subsidy end in June 2023, based on the federal government’s earlier timeline, the sum of N3.36 trillion would be required to meet the financial obligations associated with subsidising the product.
The government explained that the Nigerian National Petroleum Company (NNPC) Limited, which on Tuesday officially transitioned into a fully commercial entity, would bear the cost of subsidy on petrol for the first six months of the year.Ahmed noted the government was projecting fiscal outcomes in the medium term under two scenarios based on the underlying budget parameters/assumptions
Ahmed explained that under the first scenario, which she described as, “business as usual” assumes that the subsidy on premium motor spirit (PMS) estimated at N6.72 trillion for the full year 2023 would remain and be fully provided for.According to her, the second scenario was that, “petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for.”
The minister stated that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.On the import of NNPC’s transition to a limited liability company, she explained that the company would no longer be contributing to the monthly Federation Account, but would take care of subsidy for the first six months of 2023
“The new arrangement has indicated that NNPC will not be contributing monthly to the Federation Account as they used to in the past. But NNPC will be paying royalties, dividends and taxes. So, while the revenue might not be monthly, we will work on an arrangement on how this will be paid. And it is possible to work out an arrangement where the payments could be monthly or quarterly.“NNPC has been paying for subsidy, but they are doing it on behalf of the federation, on the cost of the federation, even though they are the ones that have been paying.
“So, when they generate revenue, instead of remitting the revenue they are using part of the revenue or all of them to fund the subsidy. That has been the arrangement and that is what will continue to be in place until we exit the first time scenario one.“So I was just saying that a new arrangement regime, NNPC will not be contributing to FAAC (Federation Account Allocation Committee) on a monthly basis, but NNPC will still be paying taxes, royalties and dividends.
“We will be engaging the NNPC on how we expect this to come. We can negotiate how these remittances will be done on a quarterly basis for example. But let me also say that prior to the NNPC transiting, for about eight months, we have not been receiving any revenues.”However, the minister expressed hope that the emergence of new refineries would fully lay to rest the issue of subsidy
Providing further details of the 2023-2025 MTEF-FSP, Ahmed noted that the projections deviated from the projections in the National Development Plan (NDP) 2021-2025., adding that they have been updated based on a combination of current realities and a modified medium term outlook.She said: “In the MTEF, real GDP growth is projected at 3.75 per cent in 2023, from a revised projection of 3.55 per cent for 2022. Growth is expected to moderate to 3.30 per cent in 2024 before picking up to 3.46 per cent in 2025.
The inflation rate is projected to average 17.16 per cent in 2023, up from the revised average of 16.11 per cent for 2022.“Upward pressure on prices is expected to be driven by the current and lag effect of the global price surge due to the Russia-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation, as well as other supply-side constraints.”Providing further insight into the MTEF-FSP, the minister disclosed that the aggregate expenditure for 2023 were predicated on two scenarios of N17.99 trillion and N16.98 trillion
The first scenario of N17.99 trillion projected for 2023, which is N669.82 billion or 3.9 per cent higher than the 2022 budget of N17.32 trillion (Inclusive of Government Owned Enterprises) is based on the non-provision for ministries, departments and agencies’ capital expenditure beyond multilateral/bilateral loan- funded and project-funded projects.
“In this scenario, given the severely constrained fiscal space, it is not feasible to make any provision for MDAs’ capital expenditure in 2023 beyond multilateral/bilateral loan- funded and project-funded projects. The FGN’s 2023 aggregate expenditure is estimated at N16.98 trillion, which is N337.05 billion (1.9%) lower than the 2022 budget,” she said
In the second scenario, Ahmed said: “The FGN’s 2023 aggregate expenditure is estimated at N17.99 trillion, N699.82 billion (3.9%) higher than 2022 (Inclusive of GOEs). The sums of N20.29 trillion and N22.73 trillion are projected to be spent by the FGN in 2024 and 2025 respectively.”
Oil price benchmark for 2023 was predicated on $70, $66 and $62 per barrel in 2023, 2024 and 2025 respectivelyOil production is also based on 1.69 million, 1.83 million and 1.83 million barrels per day in 2023, 2024 and 2025 respectively.The projected exchange rate for 2023 was pegged at N435/$ as against N410.15 in 2022.Of the projected revenue of N6.34 trillion revenues in 2023, only N373.17 billion or 5.9 per cent is coming from oil-related sources while the balance of N5.97 trillion is to be earned from non-oil sources
[7/22, 06:50] Mummy Favour: Responding to questions on subsidy, the Minister of State, Finance, Budget and National Planning, Mr. Clem Agba said the federal government subsidies PMS to the tune of between N600-N700 per litre, adding that this should not be allowed to continue.
Agba said if the trend was allowed to continue full stream till the end of next year, nothing would be left for capital expenditure.He said: “There is still a huge subsidy because the cost of production of PMS is in the neighborhood of about 600 to 700 naira per litre. Right now, Nigeria is the only country in the world that is selling at about N165 or N200.“If you call your friends or brothers in the States or in Europe or in other African countries, you will know that PMS is currently being sold at a range of between N800 to N1000 per litre.
I think that the time to remove the subsidy was yesterday. We are only eating away our future and that is what some people call a consumption economy. Finally, it is difficult to understand a situation where citizens say that they want an omelette and then when the government wants to break eggs so that they can produce, they say don’t break the eggs.“So, it’s a decision that Nigerians will have to take because if you look at scenario one, it means that we will not have any capital expenditure in 2023. Simple.“There’ll be no capital expenditure at all, and taking care of recurrent expenditure will be a huge challenge.”