The Federal Government on Monday proposed to borrow over N11 trillion and sell some national assets to finance budget deficit next year.
This proposed borrowing is far above the stipulated threshold in the Fiscal Responsibility Act. According to the existing Act, the deficit must not exceed three per cent of the GDP.
The FG also said that the controversial petroleum subsidy would remain in place until mid-2023, with a proposed expenditure of N3.36 trillion for petrol subsidy in 2023.
The Minister of Finance, budget and national planning, said this on Monday while appearing before the house of representatives committee on finance to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
The Minister said that the Federal Government is proposing an aggregate expenditure of N19.76 trillion for the 2023 financial year, a 15.37 per cent increase from the 2022 budget.
She said that government’s budget deficit is expected to exceed N12.42 trillion if it should keep petroleum subsidy for the entire 2023 fiscal cycle. The subsidy would gulp N6.72 trillion according to the minister.
If the subsidy lasts until June 2023, she said the deficit would be N11.30 trillion while subsidy would gulp N3.36 trillion.
- Read also: FG spends N18.397bn on petrol subsidy daily – Finance Minister
- Petroleum subsidy cost jumps 1,452% from N257bn in 2006 to N4trn in 2022 – BudgIT
The Minister said FG is projecting a total revenue of N8.46 trillion, out of which N1.9 trillion is expected to come from oil-related sources while the remaining is to come from non-oil sources.
The 2023 budget is benchmarked on oil price of $70 per barrel, daily oil production of 1.69 million barrels, an exchange rate of N435.57 per dollar, inflation rate of 17.16% and GDP growth of 3.7%.
The Minister said, “The budget deficit is projected to be N11.30 trillion in 2023, up from N7.35 trillion in 2022. The draft 2023-2025 MTEF/FSP has been prepared against the backdrop of continuing global challenges occasioned by lingering COVID-19 pandemic effects, as well as higher food and fuel prices due to the war in Ukraine.
“Overall, fiscal risks are somewhat elevated, following weaker-than-expected domestic economic performance and structural issues in the domestic economy.
“Revenue generation remains the major fiscal constraint of the Federation. The systemic resource mobilisation problem has been compounded by recent economic recessions. Efforts will however focus on improving tax administration and collection efficiency.
“Bold, decisive and urgent action is urgently required to address issues of revenue underperformance and expenditure efficiency at national and sub-national levels.”
“My understanding is that security agencies and the national oil company (NNPC), as well as the regulators, have been working very hard to find solutions and what they tell us is that they are beginning to see improvement.
“From the performance in April at 1.3 million barrels per day and by July it was 1.4 million. We do hope that the increase will be very significant because it’s costing us not just N3.2 billion in terms of security cost, it’s costing us the revenue we have earned. At 39 per cent, the oil and gas revenue as at April is at very low performance.”
On the issue of the Morocco-Nigeria gas pipeline, she said: “The Federal Executive Council, a few weeks ago, approved funding for the feasibility study, which means that it’s still at the feasibility study phase. The national oil company can provide the details.”
Ahmed said the Petroleum Industry Act (PIA) has given the NNPC Limited some independence from the federation and has to perform in line with the laws of the Company and Allied Matters Act.
“A lot of the expenditure the federation used to carry will now be carried by NNPC Limited. NNPC will be paying taxes and dividends and we believe in the medium term the federation will end up earning more revenue.
“It also means that the NNPC will need to go and borrow money on its own. That will improve efficiency in the company. They have to pay dividends and royalties to the federation which they were not doing before,” she said.
According to her, the government is projecting oil production of 1.69 million barrels per day for next year.
“Based on the projection of NNPC, they are hoping that all the measures taken now are going to result in increased production and we hope it works out. If it doesn’t, the deficit situation we found ourselves in will be even worse,” she said.
She said: “In the budget, what we had planned was 60 per cent of revenue to debt but we had some months when the ratio goes up to 90 per cent.
“We actually follow the Medium-Term Debt Management Strategy very strictly; the debts are not taken haphazardly and they are planned. They are appropriated and then we borrow against appropriation.’’
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.