On Thursday, July 21, 2022, the Minister of Finance, Budget and National Planning presented a consultation paper for the 2023-2025 Medium Term Expenditure Framework/Fiscal Strategy. This disclosure reviews the key highlights of the presentation and the logical next steps for Nigeria’s development, economy and the welfare of citizens.
The consultation started with a review of the economic and budgetary performance for the period January to April 2022 and in some instances, the first half of the year 2022. Oil production averaged 1.32 million barrels per day (mbpd) in April as against the 1.60mbpd projected in the budget. This is exclusive of production for the repayment of arrears of cash calls. It will be recalled that Nigeria’s Organisation of Petroleum Exporting Countries quota is 1.8mbpd. Oil price as at April averaged $103.60 per barrel (pb) as against the projected $73pb. The official exchange rate was N415.19 to $1 as against the projection of N410.15 to $1.Inflation rate stood at 17.71% as at May but has increased in June to 18.60%, while Gross Domestic Product growth stood at 3.11% as at the end of the first quarter.
The oil production is below the projection in the budget and our assigned OPEC quota. The lame excuse for low oil production is the high incidence of crude oil theft and pipeline vandalism. However, the consultation paper failed to explain to Nigerians that it was FGN’s mismanagement of the oil sector that led to the reduction in the quantity of oil produced. As at the end of 2015, the year the Buhari administration took over, Nigeria’s oil lifting was 2.16mbpd, a little shortfall from the 2.28mbpd projected in the 2015 federal budget.
The industrial scale oil theft has been estimated to be in the neighborhood of 200,000 to 300,00bpd. 280,000bpd, being the difference between the projected 1.6mbpd and the actual production of 1.32mbpd, is a daily loss of $29m. For the 181 days in the first six months of 2022, this amounts to $5.249bn, being the overall market value before deduction of costs and sharing between the oil producing companies and the FGN based on the respective production agreements. This development questions the execution of the mandate of several security agencies including the Navy, National Maritime Administration and Safety Agency (NIMASA), Nigeria’s Security and Civil Defence Corps (NSCDC), the Army, Nigeria Police and security companies hired by Nigerian National Petroleum Corporation and oil producing companies.
The oil price of $103.60pb as against the budgeted $73pb is an additional $30.6pb. If Nigeria had met the projected production of 1.60mbpd, this would be extra revenue of $8.568m per day and $1.551bn for the first 181 days of the year. The increased oil price offered Nigeria a wonderful opportunity to fund the deficit proposed in the 2022 budget without borrowing or selling down assets. But this opportunity was missed.
The report on the exchange rate is simply a question of the Central Bank of Nigeria living in denial and presenting Nigerians with alternative facts which are not founded on reality and the lived experience of millions of Nigerians. Since the CBN is by law the authority charged with managing the exchange rate regime, it cannot continue to run the regime through a fixation different from the actual value of the naira. How can the naira that exchanges on the streets of Nigeria in excess of N620 to $1 at the date of the presentation of the consultation paper be stated to have a value of N415.19 to $1? Even if there should be a band or slight difference between the official and street value of the naira, a 33% difference in valuation is such a wide gulf. The inflation and growth indicators missed their budgeted targets. The current inflation rate of 18.60% is in excess of the budget proposal by 249 basis points. The actual growth figure of 3.11% is below the projection of 3.55%.
FGN’s retained revenue as at the end of April 2022, inclusive of the revenue of Government Owned Enterprises (GOEs) was N1.630trn and excluding GOEs, it came down to N1.493trn as against the prorated sum of N3.32trn. The former being 49% of the prorated sum while the latter is 44% of the prorated sum. Essentially, this is sub optimal performance.
The prorated expenditure by the end of April from the N17.32trn federal budget should be N5.77trn. The actual expenditure of N4.72trn is 82% of the prorated expenditure. However, considering actual revenue at N1.630trn, an extra unearned amount of N3.09trn, being the deficit for the period, was spent. The actual revenue is a mere 53% of the deficit financing of N3.09trn. The actual revenue as a percentage of overall expenditure is a paltry 35%. Now to the disaggregation of the expenditure, N1.94trn representing 41% of the expenditure went to debt service; N1.26trn being 27% went into personnel; capital expenditure took N773bn, being 16% of expenditure, while the unstated expenditure of N726.3bn took 15% of overall spending.
The explanation of the foregoing income and expenditure figures is that we spent more than we earned to service debt as we borrowed additional N310bn to complete debt service. Borrowing for financing debt service was never in the contemplation of the Fiscal Responsibility Act, the enabling debt management framework law. It only authorised borrowing for capital expenditure and human development. Our combined personnel and capital expenditure is just 2% more than debt service. Essentially, FGN is bankrupt, insolvent, and unable to pay its debts or meet its due obligations. It is merely living on borrowed time and under the shield of sovereign immunity.
In a private sector company/outfit recklessly managed or which has traded recklessly as the managers of the Nigerian economy have done, the directors and managers would have been removed by the creditors and either a liquidator or interim board and managers appointed to recover debts/assets for creditors or help the company return back to normalcy and profitability. The directors and managers are the elected officials and their appointees who have managed Nigeria’s economic, fiscal, petroleum, etc., regimes at the highest level. Yes, we have a Minister of Petroleum who has over seven years supervised the decay and rot in the sector to the point that we cannot meet our budgeted oil production which is lower than our OPEC quota. As to the lame excuse of oil theft and vandalism, the same Petroleum Minister is also the Commander-in-Chief of all security architecture in the country.
Furthermore, those who kept reassuring us that we do not have a debt challenge but a revenue challenge, even when the facts have crystallized that we are heading towards insolvency, should explain to Nigerians how they deliberately led us to this bind. Assuming without conceding that it was a revenue challenge, nothing substantial was done to increase revenues.
Nigerians need to act now that we have hit rock bottom; to ask for new managers for the economy; to ask those currently in charge to step aside. If we fail to act now, by the time the lenders, reformers and economic restructurers of the last resort in multilateral institutions like the IMF/World Bank step in to restructure our economy, the pills may be too harsh to swallow. Surely, we are on our way to letting them in if we do not start the reform process at our pace and timing.
