Ibekimi Oriamaja Reports.
Mrs. Zainab Ahmed, Minister of Finance, Budget, and National Planning, raised the alarm yesterday by revealing 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.
Furthermore, Ahmed projected a total N6.72 trillion as the full-year budget for petrol subsidy payments in 2023, if the country continues with the policy that has been identified as a drain on the economy.
It was also revealed yesterday that the federal government spent more on debt service than it earned in revenue in the first quarter (Q1) of 2022.
The Minister of Finance revealed this during the unveiling of the Medium Expenditure and Fiscal Strategy Paper (MTEF-FSP) in Abuja.
When debt service costs exceed revenue, there is a clear indication of impending danger, and policymakers must be willing to implement the necessary reforms to save the economy.
“The total expenditure for 2022 is estimated to be N17.32 trillion, with a pro rata spending target of N5.77 trillion by the end of April,” the minister explained.
The actual spending as of April 30th was N4.72 trillion. This amount included N1.94 trillion for debt service and N1.26 trillion for personnel costs, which included pensions. As of April, capital expenditure had reached N773.63 billion. As of April 2022, the FGN’s retained revenue was only N1.63 trillion, or 49 percent of the pro rata target of N3.32 trillion.”
She confirmed that the federal government received N285.38 billion in oil revenue, representing a 39 percent performance, and N632.56 billion in non-oil tax revenues, representing an 84 percent performance.
According to Ahmed, if the subsidy expires in June 2023, as previously stated by the federal government, N3.36 trillion will be required to meet the financial obligations associated with subsidizing the product.
The government explained that for the first six months of the year, the Nigerian National Petroleum Company (NNPC) Limited, which officially became a fully commercial entity on Tuesday, would bear the cost of petrol subsidies.
Ahmed stated that the government was projecting fiscal outcomes in the medium term under two scenarios based on the underlying budget parameters/assumptions.
Both scenarios, according to the minister, have implications for net accretion to the Federation Account and projected deficit levels.
On the significance of the NNPC’s transition to a limited liability company, she stated that the company would no longer contribute to the monthly Federation Account, but would handle subsidy for the first six months of 2023.
“The new arrangement indicates that NNPC will no longer contribute monthly to the Federation Account as they did previously,” she said. However, NNPC will be required to pay royalties, dividends, and taxes. So, while the revenue may not be paid on a monthly basis, we will work out a payment plan. It is also possible to arrange for payments to be made monthly or quarterly. ” NNPC has been paying for subsidies, but they do so on behalf of the federation and at the expense of the federation, despite the fact that they are the ones who have been paying.
“So, when they generate revenue, instead of remitting it, they use a portion or all of it to fund the subsidy.” That has been the arrangement, and it will remain so until we exit scenario one for the first time.” So, under the new arrangement regime, NNPC will no longer contribute to FAAC (Federation Account Allocation Committee) on a monthly basis, but it will continue to pay taxes, royalties, and dividends.
“We will consult with the NNPC on how we anticipate this happening.” We can agree on a quarterly schedule for these remittances, for example. But let me also state that prior to the NNPC transiting, we had not received any revenues for about eight months.”
However, the minister expressed hope that the establishment of new refineries would completely resolve the subsidy issue.
In providing additional details about the 2023-2025 MTEF-FSP, Ahmed stated that the projections differed from those in the National Development Plan (NDP) 2021-2025, and that they have been updated based on a combination of current realities and a modified medium term outlook.
“In the MTEF, real GDP growth is projected at 3.75 percent in 2023, up from a revised projection of 3.55 percent in 2022,” she said. Growth is expected to slow to 3.30 percent in 2024 before accelerating to 3.46 percent in 2025.
“Inflation is expected to average 17.16 percent in 2023, up from the revised average of 16.11 percent in 2022.”
Prices are expected to rise due to the current and lag effect of the global price surge caused by the Russia-Ukraine war, domestic insecurity, rising import costs, exchange rate depreciation, and other supply-side constraints.”
In addition, the minister revealed that the aggregate expenditure for 2023 was 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% higher than the N17.32 trillion (Inclusive of Government Owned Enterprises) budget for 2022, is based on no provision for capital expenditure beyond multilateral/bilateral loan-funded and project-funded projects.
“Given the severely constrained fiscal space, it is not feasible to make any provision for MDA capital expenditure beyond multilateral/bilateral loan-funded and project-funded projects in this scenario.” “The FGN’s aggregate expenditure for 2023 is estimated to be N16.98 trillion, which is N337.05 billion (1.9 percent) less than the budget for 2022,” she said.
According to Ahmed, the FGN’s aggregate expenditure in 2023 is estimated to be N17.99 trillion, N699.82 billion (3.9 percent) higher than in 2022. (Inclusive of GOEs). The FGN is expected to spend N20.29 trillion and N22.73 trillion in 2024 and 2025, respectively.”
The benchmark oil price for 2023 was set at $70, $66, and $62 per barrel in 2023, 2024, and 2025, respectively.
Oil output is also projected to be 1.69 million, 1.83 million, and 1.83 million barrels per day in 2023, 2024, and 2025, respectively.
The projected exchange rate for 2023 is N435/$, compared to N410.15 in 2022.
Only N373.17 billion or 5.9 percent of the projected revenue of N6.34 trillion in 2023 will come from oil-related sources, with the remaining N5.97 trillion coming from non-oil sources.
In response to questions about subsidies, Mr. Clem Agba, Minister of State for Finance, Budget, and National Planning, stated that the federal government subsidizes PMS to the tune of N600-N700 per litre, adding that this should not be allowed to continue.
Agba stated that if the current trend is allowed to continue until the end of next year, there will be no funds available for capital expenditure.
“There is still a huge subsidy because the cost of producing PMS is around 600 to 700 naira per litre,” he said. Nigeria is currently the only country in the world where prices are around N165 or N200. If you call your friends or brothers in the United States, Europe, or other African countries, you will learn that PMS is currently sold for between N800 and N1000 per litre.
“I believe the time to eliminate the subsidy was yesterday.” We are only consuming our future, which some refer to as a consumption economy. Finally, it is difficult to comprehend a situation in which citizens say they want an omelette and then, when the government wants to break eggs in order to produce, they say “don’t break the eggs.” So it is a decision that Nigerians must make because, according to scenario one, there will be no capital expenditure in 2023. Simple.
“There will be no capital expenditure, and recurrent expenditure will be a huge challenge.”
