- The government plans to borrow to plug a gaping N6 trillion deficit in 2020 at the time public debt has reached the highest levels in more than two decades
Minister of Finance, Zainab Ahmed, says Nigeria’s mounting security problem is compounding the country’s economic woes in varied ways and is particularly responsible for the government’s ballooning budget deficit.
The government expects about N10 trillion in revenue in 2022 but plans to spend over N16 trillion, leaving a deficit of over N6 trillion. The shortfall for 2021 stood at N5.2 trillion.
The balance is to be covered principally from borrowings — and in part from privatisation proceeds — at a time public debt has reached its highest levels in more than two decades.
Worse, actual revenue in recent years have been just about 30 per cent of the expected figures, meaning more than 70 per cent of available earnings have been used to repay lenders.
Mrs Ahmed said Friday the government’s huge spending on security equipment and operations was fueling the budget deficit and pushing the government to borrow more.
“It is unlikely that our recovery from each of the two recessions would have been as fast without the sustained government expenditure funded partly by debt,” she said at the public presentation of the budget in Abuja.
“To compound matters, the country has technically been at war, with the pervasive security challenges across the nation. This has necessitated massive expenditure on security equipment and operations, contributing to the fiscal deficit. Defence and security sector accounts for 22 per cent of the 2022 budget.”
The deficit will be financed with borrowings from domestic and foreign sources, including multilateral and bilateral finance organizations.
According to her, loans from domestic and foreign revenue sources are projected to contribute about N2.51 trillion each, while loans from multilateral and bilateral groups will provide about N1.1trillion and privatization proceeds about N90.7 billion.
President Muhammadu Buhari while presenting the 2022 budget estimate to a joint session of the National Assembly earlier justified the borrowings.
“This represents 3.39 percent of estimated GDP, slightly above the three percent threshold set by the Fiscal Responsibility Act 2007. Countries around the world have of necessity over-shot their fiscal thresholds for their economies to survive and thrive.
“We need to exceed this threshold considering our collective desire to continue tackling the existential security challenges facing our country.”
Of the total budget, the defence and security (military, police, intelligence and paramilitary) will receive N2.41 trillion.
Budget parameters
The underlying drivers of the 2022 fiscal projections, such as oil price benchmark, oil production volume, exchange rate, GDP growth, and inflation rate remain unchanged as in the previously approved 2022-24 medium-term fiscal framework.
The framework was revised based on the need to reflect the new fiscal terms in the Petroleum Industry Act (PIA) 2021, as well as other critical expenditures in the 2022 budget. The fiscal effects of PIA implementation are assumed to kick in by mid-year 2022.
Recurrent (non-debt) spending, estimated to amount to N6.83 trillion, is 41.7 per cent of total expenditure, and 18.5 per cent higher than the 2021 budget.
Aggregate capital expenditure of N5.35 trillion is 32.7 per cent of total expenditure.
At N3.61 trillion, debt service is 22 per cent of total expenditure and 35.6 per cent of total revenues.
Provision to retire maturing bonds to local contractors/suppliers of N292.7 billion is 1.79 per cent of total expenditure.
Projections
Consumption is projected to surge in the medium-term, growing from a revised N136.57 trillion in 2021 to N149.35 trillion by 2022, about a 9.36percent increase. This growth momentum is projected to be sustained reaching N179.64 trillion in 2024.
Nominal GDP is projected to rise from N168.60 trillion in 2021 to N184.38 trillion in 2022 and then up to N221.78 trillion in 2024.
Real GDP growth forecast is 4.2 per cent in 2022. Inflation is expected to remain above the single digit in the medium-term given structural issues impacting the cost of doing business, including high food distribution costs. The steady decline is however expected to be sustained, seeing the inflation rate drop to 13percent in 2022 and 10 percent by 2024.
Although Nigeria’s total oil production capacity is 2.5 mbps, current (year to date) crude production is about 1.4mbpd (slightly short of the OPEC+ production quota), and an additional 300,000bpd of condensates, totaling about 1.7mbpd.
Oil production is projected to average 1.88 million barrels per day (including condensates) in 2022.
First published in Premium Times