THE precariousness of Nigeria’s economy was laid bare last week when the government unveiled highlights of the 2023 national budget featuring a deficit of N11.3 trillion and implying a rise in the national debt to a staggering N54 trillion. Defending the 2023-25 Medium Term Expenditure Framework details before the House of Representatives Finance Committee, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said the proposed N19.76 trillion spending plan is 15.37 per cent higher than this year’s and would entail borrowings 54 per cent higher if petrol subsidies are sustained beyond the half-year to cover the entire fiscal cycle. Beyond question, disaster beckons.
The major anchors of the budget hang on shaky ground and are patently unsustainable. Nigeria is on crutches, powered along by borrowing and the resilience of its population. Even for a regime addicted to living in denial and blaming everyone else but itself, reality is dawning. The President, Major General Muhammadu Buhari (retd.), must take the long-neglected hard decisions needed to avoid a collapse.
Ahmed admitted that total projected revenue of N8.46 trillion would be outstripped by borrowings, especially if the petrol subsidy is sustained beyond the June 2023 planned exit date to July-December. This would bring the deficit to N12.42 trillion, including new borrowings of N9.32 trillion, with N7.4 trillion targeted from domestic sources, and N1.8 trillion from external sources. Ominously, there may be no money available for capital projects, said Ahmed.
As she spoke, a new report showed that the government borrowed N695 billion from the Central Bank of Nigeria in July to bring total credit from the apex bank since January to N3.15 trillion, and total cumulative exposure to the CBN’s ‘Ways and Means’ lifeline to N20.61 trillion. This, said the Debt Management Office, is not included in the total national debt of N41.60 trillion as of March 2023.
Assumptions of an average production of 1.69 million barrels of crude per day, and $70 per barrel oil price are shaky. Hit by massive theft and vandalism perpetrated by cartels that are aided by regulators and security personnel, and lacking the will and effective counter-theft strategy, up to 400,000 barrels of crude is stolen daily. Consequently, the country’s OPEC quota of 1.8mbpd cannot be met, and production averaged 1.4mbpd in July. Thus, the N1.94 trillion expected from crude may not materialise.
Nigeria must change course as the economic situation is frightening. Buhari’s over-reliance on borrowing has to be curbed. Though the IMF estimated 93 per cent of all revenue being spent on servicing debts this year, Ahmed confessed that in fact, government has been spending 119 per cent of its earnings; meaning that it has been borrowing to repay debts! The federal and state governments borrow to pay salaries.
Regime operatives continue to bemoan revenue deficits but do little beyond imposing new burdens on performing sectors of the economy. Tax collection is shambolic; Nigeria ranked 115th out of 115 countries in average revenue-to-GDP ratio, reported PwC. Its 6.1 per cent tax-to-GDP ratio is the lowest among 30 countries surveyed by OECD, coming way behind Tunisia and Seychelles with 34.3 per cent each; Morocco 28.4 per cent; South Africa 26.2 per cent, and Egypt 14.2 per cent.
Tax collection must be made effective, deepened, and widened. Of the N3.1 trillion collectible VAT in 2019, the Budget Office said only N1.2 trillion was realised; N2 trillion was not collected due to non-compliance. Revenue-to-GDP, said OECD, declined from 17.9 per cent in 2011 to 7.6 per cent in 2019 and 4.6 per cent in 2020, the lowest in the world, according to the IMF. Only a fraction of the over 70 million economically active population pays income tax.
The IMF says the country must raise this to between 15-20 per cent in the next three years to bring the country out of the “existential threat” it faces. Moreover, the 3.7 per cent overall GDP growth projected in Budget 2023 cannot bridge the gap for an economy emerging from two recent recessions, has a jobless rate of 33.3 per cent, inflation of 19.64 per cent (June), and a manufacturing sector that shrank by 33 per cent, remains import-dependent and is racing towards a debt burden of N54 trillion. Since 2006, the World Bank has projected that the country needs an unbroken decade of double-digit growth yearly to escape poverty. The 3.4 per cent growth in 2021 is nothing to celebrate.
In the face of the unprecedented headwinds, the Buhari regime remains clueless but continues to clutch at excuses. True, it inherited a fraught situation in 2015; oil prices had crashed in mid-2014, causing revenue disruptions and exports had declined. Insecurity has also impacted on agriculture, transportation, and industry. The COVID-19 pandemic and the global economic contraction have also recently collided with the fallout of the Russia-Ukraine war.
But the regime has failed to weather the storm: it continues to ignore the benefits of effective privatisation of state-owned commercial enterprises; it does not collect due taxes and other revenues such as the N6 trillion combined that the Senate said had been withheld by 60 statutory agencies, and it sustains waste, corruption and a bloated bureaucracy and patronage system.
You cannot rescue an economy by riotous borrowing and consumption-induced deficits. There must be a realistic recovery plan. Government must drastically cut costs and reduce the bureaucracy; the recent increase in travel allowances for public officials at this time demonstrates Buhari’s confusion. Dispensing with the ‘envelope’ budgeting mode (where sums are simply added to the previous year’s headings) should give way to needs, with procurement based on immediate requirements.
Insecurity must be tamed for unfettered farming, transportation, and commerce. The import bill should be reduced, and local production encouraged. Spending should be directed at critical infrastructure, not consumption; while state governments should prioritise job creation, rural infrastructure, and policies to attract investment in mining, agriculture, ICT, manufacturing and micro, small and medium enterprises.
The CBN should tackle inflation and strengthen the national currency now in freefall. The power sector should be reformed. The outrageous petrol subsidy of N3.36 trillion that could potentially double has to be stopped by promoting domestic refining in the shortest possible time.
Saving the economy is a national emergency; Buhari needs to partner with the private sector and its critical segments to accomplish this.
