Debt Servicing Surpasses FG Revenue

0

CEM REPORT | Nigeria spent more than it generated in servicing debt, in the first quarter of the year (Q1’22).

The Minister of Finance, Budget and National Planning, Zainab Ahmed made the disclosure at the public consultation on the draft 2023 – 2025 Medium Term Fiscal Framework/Fiscal Strategy Paper (MTFF/FSP) on Thursday in Abuja.

The Minister while explaining the fiscal performance for the first quarter of 2022, revealed that the federal government’s total revenue for the period was N1.63 trillion, while the debt service gulped N1.94 trillion.

The performance report showed that the pro rata spending target for the first quarter of the year was N5.77 trillion, while the actual spending as of April 31 was N4.72 trillion.

On the other hand,

Federal Government retained revenue as of April 2022, was N1.63 trillion, 49 percent of the pro-rata target of N3.32 trillion, putting the deficit between actual spending and revenues at N3.09 trillion, indicating that the federal government likely borrowed to cover the deficit.

A breakdown of the actual spending showed that N1.94 trillion was for debt service, N1.26 trillion for personnel costs, including pensions, and as at April, N773.63 billion had been spent on capital expenditure.

The government’s 2022 budget was projected to be N17.32 trillion, 18 percent higher than the 2021 budget. Recurrent (non-debt) spending is estimated to amount to N6.91 trillion, which is 40 percent of total expenditure, and 20 percent higher than the 2021 Budget.

Aggregate capital expenditure of N5.96 trillion, 35 percent of total expenditure, inclusive of the capital component of Statutory Transfers, Government-Owned Enterprises (GOE) capital, and project-tied loans expenditures. At N3.61 trillion, debt service is 21 percent of total expenditure, and 34 percent of total revenues.

Giving an overview of the 2023-2025 Medium Term Revenue Framework (MTRF) on oil and gas revenues and Federally Funded Upstream for the period under review, Ahmed said two scenarios were open for consideration.

“The projected fiscal outcomes in the medium term are presented under two scenarios based on the underlying budget parameters/ assumptions, as follows: Scenario 1 – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for the full year 2023, will remain and be fully provided for. 

“Scenario 2 – the Reform scenario: This assumes 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.”

However, the minister warned that both scenarios have implications for net accretion to the Federation Account (FAAC) and projected deficit levels, noting that the new NNPCL would not be contributing to the FAAC.

“the new arrangement has indicated that NNPC will not be contributing monthly to the Federation 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 either monthly or quarterly. “

She added that NNPCL will be paying taxes like any other company while starting that before the transition NNPC had not remitted revenue due to subsidy payments.

“So I was just saying that in a new arrangement regime, NNPC will not be contributing to FAAC 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. Why are we not receiving any revenues from the Federation? Because the NNPC has been instructed to cover the cost of fuel subsidy on behalf of the federation. 

“It can only be a government agency and in this case, we see the structure of the evaluation. 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 it to fund the subsidy. That has been the arrangement and that is what will continue to be in place until we exit the first scenario.”

She noted that the removal of subsidies should be expressly considered.

“And that’s why it’s important for us to consider this issue of removal of subsidies very seriously because no marketer is willing to buy PMS after sourcing foreign exchange and competing with subsidies.”

Furthermore, the minister explained the key assumptions and microframework for 2023 – 2025 MTFF projections, noting 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 per cent in 2023, from a revised projection of 3.55 per cent for 2022, while growth is expected to moderate to 3.30 per cent in 2024 before picking up to 3.46 per cent in 2025.

Inflation rate is projected to average 17.16 per cent in 2023, up from the revised average of 16.11 per cent for 2022 as upward pressure on prices is expected to be driven by the current and lag effect of the global price surge due to the Russian-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation, as well as other supply-side constraints.

Responding to questions on the subsidy payment, Minister of State for Budget and National Planning Prince Clem Agba insisted that except the subsidy payment was stopped, the federal government may not be able to execute capital projects in 2023.

According to him, the country was eating away its future with the continuous payment of fuel subsidy.

“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. There’ll be no capital expenditure at all, and taking care of recurrent expenditure will be a huge challenge with scenario 2 where we’ll say let’s take it out to June. It means we only have about one trillion left for capital expenditure.

“And when you look at our budgets over the years, we have tried to ensure that the minimum capital that was spent is about 30% for the project, but this doesn’t meet up to our expectation. So, the answer to this really lies in what the citizens want.”

The country further estimates to spend N6.7trillion on fuel subsidy in 2023.

0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments