Following the passage of the 2022 Appropriation Bill by the Nigerian National Assembly and its eventual signing into law on the 31st December 2021, the Minister of Finance, Budget and National Planning, Zainab Ahmed organised a public presentation and breakdown of the 2022 budget in Abuja last Wednesday.
The budget has a deficit of N6.39 trillion which represents 3.46 per cent of GDP. This is above the 3 per cent ceiling set by the Fiscal responsibility Act 2007 (FRA). However, the government said that the expenditure level was necessary to assist with overcoming current security challenges and accelerate post-recession growth. It insists that Nigeria only has a revenue challenge and not a debt sustainability problem.
This deficit in the budget is expected to be financed by new borrowings, privatisation proceeds and drawdown on loans secured for specific projects.
The key assumptions of the budget as signed by the President include: oil production of 1.88 mbpd; oil benchmark of $62 pbl from an earlier $57pbl proposed by the executive; Exchange Rate of N410.15/$1; 13 per cent inflation rate; N119. 28 trillion Nominal Consumption; N184. 38 trillion Nominal Domestic Product; and 4.20 GDP growth rate.
The projected aggregate revenue available to fund the 2022 budget of N10.74 trillion which is inclusive of revenue from government-owned enterprises (GOEs) is 32 per cent higher than the 2021 projection of N8.12 trillion. The revenue will fund the 2022 aggregate federal government expenditure of N17.13 trillion, which is 18 per cent higher than the 2021 Budget.
In 2022, debt servicing is expected to gulp N3.61 trillion, and this would represent 21 per cent of total expenditure, and 34 per cent of total revenues.
As earlier stated, the budget deficit is N6.39 trillion for 2022 which represents 3.46 per cent of GDP and would be financed mainly by borrowings, which are: Domestic sources: N2.57tn; Foreign sources: N2.57tn; Multilateral/bi-lateral loan drawdowns: N1.16tn, and Privatisation Proceeds of N90.7bn.
The 2022 federal government budget deficit of N6.39 trillion which represents 3.46 per cent of GDP is manifestly in excess of the 3 per cent rule in section 12 of the Fiscal Responsibility Act which states that aggregate expenditure can only exceed the ceiling imposed by the FRA when there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria.
There are clear and present threats to national security and sovereignty of Nigeria of the magnitude required to trigger a deficit in excess of the 3 per cent ceiling. But these threats are self-inflicted and could have been better managed and stopped from deteriorating to the present level.
This large deficit financing which has persisted over the years is not sustainable in the short, medium and long terms and should be discontinued in favour of raising more governmental revenue.
Commenting on the issue, the Lead director of the Centre for Social (CSJ), Eze Onyekpere offered some evidence-based internal revenue sources as alternatives to Nigeria’s borrowing spree and budget deficit.
Onyekpere was one of the panellists at a Technical Roundtable on the 2022 federal government budget on the theme: Aligning with the Medium – Term National Development Plan (MTNDP) for Accelerated Transformation organised by ActionAid in Abuja.
He spoke on the theme: “Exploring Internal Opportunities for Expanding Nigeria’s Fiscal Spaces for Sustainable Development Financing.”
He said that Nigeria is in a position to double public revenues if it blocks leakages, streamline fiscal laws and policies, and enforce them to the letter. “But the most critical binding constraint is the absence of the political will for change,” he said.
Onyekpere said, policies need to be informed by empirical evidence and some form of pragmatism beyond the prescriptions in textbooks adding that reforms will get the support of critical stakeholders if there is increased transparency in the management of public funds.
He suggested that cleaning up the fuel subsidy, streamlining tax expenditure, deducting due operating surplus, properly accounting for the revenue from electronic money transfer, capturing the foreign exchange component of diaspora remittances, and setting up and proper management of special funds will shore up revenue for the country.
Thesis put forward by him includes reorganising the National Housing Fund to mobilise funds that will benefit contributors over the short, medium and long term. Evidence suggests that if the Fund had been well managed since inception during the Ibrahim Babangida presidency, it could have garnered trillions of naira in savings.
He added that Nigeria can generate more revenue for financing development if there is a great political will and increased transparency and accountability in public finance management.
For example, N1.061 trillion was expected from independent revenue in 2021. Out of the N707.93bn for the prorated period of January to August, N691.36 billion was realised which is a -2.3 per cent variance. This revenue head over the years has been fraught with leakages.
It is a welcome development that the federal government through the 2020 Finance Act has introduced some measures to improve the collection of independent revenues. These include ensuring automatic deduction at source of past due operating surplus remittances by GOEs; capping cost to revenue ratio of GOEs to a maximum of 50%.
It is further recommended that the federal government considers domiciling the accounts of relevant GOEs and agencies in sub accounts of the Treasury Single Account (TSA) and deduct the due percentages at source before transferring the residue to the GOEs and agencies. This will ensure that all due operating surplus and portions of due IGR are deducted at source.
Also, the Fiscal Responsibility Commission should be strengthened by law and policy to fully implement the mandate of empirically calculating and collecting due operating surplus as provided in the FRA.
Furthermore, a follow up on the recommendations of the Auditor-general for the Federation on all monies due to the treasury but held up in several MDAs will increase the independent revenue of FGN as well as the funds available for sharing at the Federation Account by the three tiers of government.
Another route towards dismantling the current budget deficit regime is by streamlining tax expenditure. For example, under the Strategic Revenue Growth Initiative, the federal government promised to evaluate the process and policy effectiveness of fiscal incentives through reviewing sectors eligible for Pioneer Tax Holiday incentives under the Industrial Development Income Tax Relief Act; dimension the cost of tax waivers/concessions and evaluate their policy effectiveness, set annual ceilings on tax expenditures to better manage their impact on already constrained government resources, among other things.
Tax expenditures are equivalents of appropriating public revenue for the specific use of particular individuals or class of taxpayers. Foregone revenue under various tax reliefs was 57.9 per cent of collected revenue as reported in the MTEF 2022-2024 for the year preceding the MTEF.
The MTEF 2021-2023 reported tax expenditure of N4.691trillion for the year preceding the MTEF. This was more than retained revenue of that year.
There is no evidence that the expected benefits in terms of job creation, savings in foreign exchange, or increased contribution to taxation in subsequent years after the expiry of tax expenditure have materialised.
The recommendation is an amendment of the Fiscal Responsibility Act so that the minister may recommend tax relief for the approval of the National Assembly. Any proposed tax relief shall be accompanied by an evaluation of its budgetary and financial implications in the year it becomes effective and in the three subsequent years, and shall only be approved by the National Assembly, if it does not adversely impair the revenue estimates in the annual budget or if it is accompanied by countervailing measures during the period mentioned in this subsection through revenue increasing measures such as tax rate raises and expansion of the tax base.
Tax expenditures in every financial year shall not exceed thirty percent or any sustainable percentage of projected retained revenue as may be determined by the National Assembly from time to time.
Therefore, let the executive and legislature be involved in the grant of tax reliefs while a cap is imposed on the quantum that can be granted in every given year.
