Economy
The annual ritual of presenting the budget, reviewing it by the lawmakers and assenting to it by the president has just started. But how this piece of legislation impacts the wellbeing of Nigerians is generally doubtful. And with plans to increase taxes amidst rising food prices, insecurity and the huge appetite for borrowing by the federal government, Nigerians may not prepare enough for the harsh realities of 2022.
By Goddy Ikeh
THE N16.39tn budget of the federal government for 2022 may appear big and an improvement on previous years’ budgets, which had been widely criticized as too small for a population of about 200 million and the largest economy in Africa.
The 2022 budget, according to the figures reeled out by President Muhammadu Buhari during the presentation of the budget at the joint session of the National Assembly on Thursday, October 7, 2021 in Abuja, is predicated on some of the following parameters and fiscal assumptions:
With over N16tn budget, the federal government has among its parameters and assumptions, conservative oil price benchmark of $57 per barrel of crude oil, daily oil production estimate of 1.88 million barrels (inclusive of condensates of 300,000 to 400,000 barrels per day); exchange rate of four N410.15 per dollar; and the projected GDP growth rate of 4.2 percent and 13 percent inflation rate.
On the revenue estimates, the total federally-collectible revenue is estimated at N17.70 trillion in 2022, and total federally distributable revenue estimate of N12.72 trillion in 2022, while total revenue available to fund the 2022 Federal Budget is estimated at N10.13 trillion. This includes Grants and Aid of 63.38 billion Naira, as well as the revenues of 63 Government-Owned Enterprises. Oil revenue is projected at 3.16 trillion, Non-oil taxes are estimated at N2.13 trillion and FGN Independent revenues are projected to be N1.82 trillion.
On planned expenditure, a total expenditure of N16.39 trillion is proposed for the Federal Government in 2022. The proposed expenditure comprises: Statutory Transfers of 768.28 billion Naira; Non-debt Recurrent Costs of 6.83 trillion; Personnel Costs of 4.11 trillion Naira; Pensions, Gratuities and Retirees’ Benefits N577.0 billion; Overheads of N792.39 billion; Capital Expenditure of N5.35 trillion, including the capital component of Statutory Transfers; Debt Service of N3.61 trillion; and Sinking Fund of N292.71 billion to retire certain maturing bonds.
On fiscal balance, total fiscal operations of the Federal Government will result in a deficit of N6.26 trillion, representing 3.39 percent of estimated GDP, slightly above the 3 percent threshold set by the Fiscal Responsibility Act 2007. There is a plan to finance the deficit mainly by new borrowings totalling N5.01 trillion, N90.73 billion from Privatization Proceeds and N1.16 trillion drawdowns on loans secured for specific development projects.
With the twin challenges of weak revenue base and the huge appetite for borrowing, some financial experts and other stakeholders have expressed doubt that the 2022 budget may not transform the fortunes of Nigerians and the hurdles that the federal government may face in executing the 2022 budget.
Reacting to the budget proposals, the Manufacturers Association of Nigeria expressed concern over the plan of the federal government to impose more taxes and levies as stated in the 2022 budget.
The Director-General of MAN, Segun Ajayi-Kadir, said in a statement that the proposed excise duty on carbonated drinks would ‘further strangulate’ the manufacturing sector already burdened with multiple taxes, levies and fees. “The industries operating in this segment are already operating with extremely low margins. So the planned excise duties will push most of them over the edge.
“We risk an unprecedented build-up of unplanned inventory, downsizing of the labour force and factory closures. All these would vitiate the revenue expectations of governments and therefore counterproductive. Increased drive for collection of taxes and levies, bordering on a multiplicity of taxes and untoward means of collection.
“The current unbridled avalanche of taxes, fees and levies from the three tiers of government and their overzealous regulatory agencies may be compounded.
“Most often these worrisome scenarios are contrasted with little attention to supporting infrastructure and facilitation of the productive sector,” local media reports quoted the director general as saying.
Speakig in the same vein, the director-general of the Lagos Chamber of Commerce and Industry, LCCI, Chinyere Almona, said that government-owned enterprises, GOEs, which were regulators of their operating environments might be disposed to inhibit the functioning of the sectors they play in from the expectations the government had on them as listed in the budget.
“We have noted in the breakdown of the budget that more revenue is expected from the government-owned enterprises, some of which are regulators of some sectors. Good corporate governance principles and practices should be adopted.
“The push for more revenue should not compel the GOEs to undermine the health of the business environment in the pursuit of revenue targets,” she said.
And for Cordros Research, an investment company, the revenue projections in the budget may be difficult to achieve. Looking at the recently released 2022FY budget details by the ministry of finance, budget & national planning, the company noted that the federal government expects to generate N10.13 trillion in aggregate revenue, while stating that retained revenue in the last five years only achieved a 63.3% average performance rate.
On the proposed aggregate expenditure of N16.39 trillion for 2022FY is put 12.5% higher than the 2021E budget N14.57 trillion, following broad-based increases across debt service, recurrent non-debt expenditure and capital items.
“Accordingly, the federal government projects a fiscal deficit (including GOEs and project-tied loans) of N6.26 trillion or 3.4% of GDP. The federal government expects to finance the deficit through domestic borrowings (N2.51 trillion), foreign borrowings (N2.51 trillion), project-tied loans (N1.16 trillion) and privatisation proceeds (N90.73 trillion).
“If passed by the Senate, we expect the actual deficit to run significantly ahead of the budgeted deficit in 2022FY. Our expectation is hinged on (1) revenue underperformance given the over-optimistic revenue projections and (2) near-perfect execution of the expenditure items (save for capital spending) in line with the historical trends,” the company added.
The lawmakers have also joined other stakeholders in expressing their reservations on the budget. The members of the House of Representatives, who are currently considering the 2022 Appropriation Bill criticised the internal and external borrowings by the federal government, the huge budget deficit and failure by the ministries, departments and agencies to generate adequate revenue to finance the budget. The budget has a total estimate of N16.39tn, the biggest that the federa government would ever have.
In his reaction to the budget, the former director-general of LCCI, Muda Yusuf, noted that the 2022 budget outlook may not be different from that of this year, highlighting that the major worry around the budget is that of fiscal sustainability, especially in the context of recent trends of weak revenue performance.
According to him, over the years, revenue performance had consistently failed significantly below targets. On the outlook, he observed that the 2022 fiscal year would be characterised by high risks as the deficit would exceed the budgeted threshold.
“Debt sustainability challenge would persist. Debt service would continue to exert severe pressure on government finances. The Central Bank of Nigeria, CBN, financing of fiscal deficit would likely persist. This has serious consequences for inflation because of the profound impact on money supply growth. Capital budget will be financed entirely from borrowing. The Finance Minister has already hinted that government revenue could barely cover recurrent expenditure and debt service. Fuel subsidy regime would persist with attendant fiscal pressure and leakages,” he explained.
Yusuf, who is the Chief Executive Officer, Centre for the Promotion of Private Enterprise, CPPE, regretted that the huge and mounting recurrent expenditure would persist with the prospects of reduced cost of governance remaining dim.
On the way forward, he said: “There is the need to fix the security problems to create the environment for increased real sector activities. Review the foreign exchange policy regime to reduce distortions, eliminate arbitrage opportunities, minimise uncertainties, reduce exchange rate volatility and mitigate investment risks.
“Align CBN financing of deficit strictly to the provisions of the CBN Act. Demonstrate the political will to deal with the crisis at the Lagos ports. Refrain from imposing new Excise Duties on the manufacturing sector. The sector is grappling with too many macroeconomic and structural challenges already.”
He canvassed the need for government to discontinue the accumulation of commercial debt because of sustainability concerns.
According to him, some of the assumptions of the budget might be realistic while others are not.
For instance, the oil price benchmark of $57 per barrel, oil production of 1.88 million barrels daily, exchange rate of N410.15 per dollar, Gross Domestic Product (GDP) growth rate of 4.2 percent and inflation rate of 13 percent.
“The foregoing assumptions are generally realistic but for two of the assumptions. The first is the exchange rate assumption, which does not reflect the current exchange rate realities. The second is the oil production. Oil output had continued to suffer setbacks as a result of security challenges faced by oil producing companies. The companies have also been contending with numerous policy and regulatory challenge,’’ local media reports quoted Yusuf as saying.
However, some economists have criticized the N104 billion provision in the 2022 budget for the purchase, fuelling and servicing of generators by the ministries, departments and agencies of the federal government, indicating that there is no clear plan of improving the troubled power sector, which should serve the manufacturing sector and ensure that their products are competitive.
According to them, the country cannot industrialise with the poor state of the nation’s power sector and that no amount of planning and budgeting can transform the Nigerian economy and improve the wellbeing of Nigerians without first addressing the abysmal low power generation and transmission, which have remained the bane of the manufacturing sector and the exit of many firms to neighbouring West African countries.
– Oct. 25, 2021 @ 17:04 GMT |
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Tags: Central Bank of Nigeria LCCI MAN Muda Yusuf President Muhammadu Buhari Segun Ajayi-Kadir
