Federal government’s removal of subsidy on Premium Motor Spirit (PMS) is yet to produce the expected gains as official documents show a decline in oil revenue of over N1 trillion despite enforcement of the anti-subsidy policy in the last five months, creating doubt about the implementation process.
Gross oil and gas revenue was projected at N9.38 trillion in the 2023 national budget. As of July 2023, N4.16 trillion was realised from the prorated sum of N5.47 trillion.
According to the Budget Office of the Federation, after accounting for deductions (including 13 percent derivation), net oil and gas revenue inflows to the federation account amounted to only N1.69 trillion.
That is N1.01 trillion, or 37 percent, less than the target for the first seven months of 2023.
The federal authorities had argued that removing petrol subsidy would increase oil revenue and free up income for fiscal obligations.
The World Bank had also said that the federal government would save up to N11trn from the subsidy removal policy.
In the period under review, the amount available for distribution from the federation account – main pool – was N1.86 trillion. Of this, the federal government received N981.39 billion, while the state and local governments received N497.78 billion and N383.76 billion respectively.
Federal, state and local governments received N167.68 billion, N558.95 billion and N391.26 billion respectively from the VAT pool account, according to data obtained from the 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper.
Net non-oil revenue also outperformed the prorate target by N962.70 billion, or 23.2 percent.
The aggregate expenditure for 2023 is estimated at N21.83 trillion, with a prorata spending target of N12.29 trillion at the end of July.
The actual spending was N8.60 trillion. Of this amount, N3.94 trillion was for debt service, and N2.68 trillion for Personnel costs, including pensions. Only about N857.08 billion (25 percent of the pro-rata budget) has been released for MDAs’ capital expenditure as of July 2023. This level of performance is partly explained by the introduction of the “Bottom-up Cash Plan” arrangement with effect from 2023.
The 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper will be presented to stakeholders today on the sidelines of the 29th Nigeria Economic Summit in Abuja.
Despite supply chain disruptions due to heightened insecurity, and dwindling purchasing power of most Nigerians amidst harsh economic conditions, the federal government is projecting an ambitious nominal consumption for the next three years.
Consumption expenditure on which VAT is charged is assumed to increase from an average of N35 trillion in 2024, to N40 trillion in 2025 and N45 trillion in 2026, after adjusting for exemptions, zero-rated items and companies whose turnover falls below the N25 million threshold.
Based on the current 7.5 percent VAT, the government expects to make N2.625 trillion in 2024, N3 trillion in 2025 and N3.375 trillion in 2026, bringing it to a cumulative figure of N9 trillion VAT revenue within the 2024-2026 MTEF/FSP implementation.
“In the medium term, the Government will intensify efforts aimed at improving VAT coverage and collection efficiency. Wider coverage and improved collection efficiency will be achieved through nationwide VAT registration and monitoring, and deployment of ICT (auto-collect) platforms in more sectors of the economy,” the document compiled by the budget office reads in part.
The assumptions underlying the 2024-2026 Medium-Term Expenditure Framework indicate that the economic growth rate over the next three years will be higher than the modest rates recorded since the end of the recession in 2020. Economic growth is projected to increase to 3.76 percent, 4.22 percent and 4.78 percent in 2024, 2025 and 2026, respectively, mainly due to strong political will to take tough decisions and implement necessary reforms.
Risks to the outlook
The rapid accumulation of public debt, with resultant high debt service costs, has created potential fiscal risks for the federal government, creating fears over the actualization of the projections.
“If not managed prudently, high debt levels can negatively impact FGN’s ability to fund essential expenditures. The probability of crystallisation of this risk is moderate, considering factors such as borrowing conditions and debt sustainability,” the budget office said.
To mitigate this risk, the government would have to adopt a more prudent debt management strategy, enhance debt transparency, strict adherence to fiscal rules and overall improvement in public financial management.
“Most of the growth in real GDP during the period will be driven by the anticipated increase in domestic oil refining capacity, telecommunications, crop production, slight growth in investment and employment, with the bulk of projected growth coming from the non-oil sector,” the government said.
The medium-term non-oil revenue estimates were premised on anticipated growth in the different tax bases, the effective tax rate, and the projected tax collection efficiency. Tax rates are assumed to remain largely the same during the period.
