President Muhammadu Buhari, last week, unveiled a federal budget estimate of N16.39 trillion for 2022, tagged:”Budget of Economic Growth and Sustainability” before a joint session of the National Assembly. With a projected 25 per cent year-on-year rise in government spending, the budget proposal is predicated on the following parameters: oil price of $57 per barrel and oil production of 1.88 million barrels per day as well as condensates of 300,000 to 400,000 per day.
Other parameters include a projected Gross Domestic Product (GDP) growth rate of 4.2 per cent. The GDP projected growth rate is the highest ever contemplated in a federal budget estimate in eight years. But the International Monetary Fund (IMF) growth rate for Nigeria in 2022 is 2.6 per cent. The budget is also based on exchange rate of N410.5 per dollar, inflation rate of 13 per cent. Current inflation rate is 17 per cent. This is even above the CBN preferred band of between 6 and 9 per cent. The budget is also predicated on N6.26trillion deficit, which represents 3.39 per cent of estimated GDP. It is slightly above the three per cent threshold set by the Fiscal Responsibility Act 2007.
But the government has never complied with this provision. The N6.26trillion deficit is larger than the country’s entire budget in 2016. It could go even higher next year since government has only managed to attain an average of 55 per cent revenue performance. Surprisingly, President Buhari did not reveal the breakdown of the budget during the presentation.
The total revenue available to fund the budget is put at N10.13 trillion. This includes revenue from 63 government-owned enterprises as well as grants and aids put at N63.38billion. Since 2018, no fund has come from grants and aids. There are fears that the budget may not achieve the targeted goals. For instance, the N6.83trillion to be spent on non-debt recurrent expenditure represents 41.7 per cent of the total budget. For the records, that is the single largest expenditure item in the budget. It is also higher than the N5.35trillion budgeted for capital expenditure and debt service of N3.61trillion. In addition, non-oil revenues are projected to rake in N2.13trillion, up from N1.49trillion in 2021, while independent revenues are projected to contribute N1.82trillion. This raises concern about the high cost of governance. With poor revenue performance, this will leave the economy with much higher deficit than planned.
A close analysis of the budget proposal raises some concerns. First is the unending borrowing, which the President acknowledged, could be disturbing, but maintained that it would continue because Nigeria is still within the borrowing threshold. He added that debts are rising because “we borrowed our way out of two recessions.” Nigeria’s economy went into recession twice in 2016 and 2019. Secondly, government spent N6.17trillion more than it earned in 2020. This has left a fiscal deficit at four per cent of the GDP. According to CBN, it is the highest in two decades. Consequently, the fiscal deficit, which is the difference between expenditure and revenue, rose to 6 .1 per cent of GDP by year-end. Government’s frequent resort to borrowing, which has increased by over N20trillion since 2015, has not impacted positively on the lives of Nigerians.
According to IMF report, Nigerians have grown poorer and still remain among the lowest in terms of revenues globally. Moreover, government’s revenue between 2015 and 2019 was put at 7.9 per cent of GDP, compared with sub-Saharan African average of 29.8 per cent. With Nigeria’s over-reliance on crude oil earnings to fund the budget, government may be stretching itself too thin in generating sufficient revenues to fund critical projects. And with the increasing borrowing, the future of the country is bleak. Let there be more investments in the non-oil sectors of the economy. For the economy to move forward and record appreciable growth, reasonable level of budget implementation is required. But if government continues with non-compliance with existing laws on borrowing, the 2022 budget may suffer the fate of previous budgets.
Beyond that, government must tackle insecurity across the country, which hampers local and foreign investments and stabilise the foreign exchange policy regime. Let it reduce unemployment and inflation rates. It should spend less on consumption and more on productive sectors of the economy.