· Blames poor performance of oil revenue to production shortfall
By Teddy Nwanunobi
President Muhammadu Buhari has presented a total budget of N16.39 trillion for the year 2022 to a joint session of the National Assembly on Thursday.
During the presentation, Buhari said that the 2022 Budget is designed to build on the achievements recorded in previous budgets, and to actualise the 2021-2025 development plan.
“A total expenditure of sixteen point three-nine (16.39) trillion Naira is proposed for the Federal Government in 2022. The proposed expenditure comprises: a. Statutory Transfers of 768.28 billion Naira; b. Non-debt Recurrent Costs of 6.83 trillion; c. Personnel Costs of 4.11 trillion Naira; d. Pensions, Gratuities and Retirees’ Benefits 577.0 billion Naira; e. Overheads of 792.39 billion Naira; f. Capital Expenditure of 5.35 trillion Naira, including the capital component of Statutory Transfers; g. Debt Service of 3.61 trillion Naira; and h. Sinking Fund of 292.71 billion Naira to retire certain maturing bonds.
“We expect the total fiscal operations of the Federal Government to result in a deficit of 6.26 trillion Naira. This represents 3.39 per cent of estimated GDP (gross domestic product), slightly above the 3 per cent threshold set by the Fiscal Responsibility Act 2007. Countries around the world have to of necessity over-shoot their fiscal thresholds for the 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,” he stated.
Buhari, during the presentation of the budget titled, ‘Budget of Economic Growth and Sustainability’, stated that the 2022 Budget will be the last full-year budget to be implemented before the end of his administration in 2023.
He explained why his administration resorts to borrowing to finance our fiscal gaps.
“We plan to finance the deficit mainly by new borrowings (totaling) 5.01 trillion Naira, 90.73 billion Naira from privatisation proceeds and 1.16 trillion Naira drawdowns on loans secured for specific development projects.
“Some have expressed concern over our resort to borrowing to finance our fiscal gaps. They are right to be concerned. However, we believe that the debt level of the Federal Government is still within sustainable limits. Borrowings are to specific strategic projects and can be verified publicly.
“As you are aware, we have witnessed two economic recessions within the period of this administration. In both cases, we had to spend our way out of recession, which necessitated a resort to growing the public debt. It is unlikely that our recovery from each of the two recessions would have grown as fast without the sustained government expenditure funded by debt.
“Our target over the medium term is to grow our Revenue-to-GDP ratio from about 8 per cent currently to 15 per cent by 2025. At that level of revenues, the Debt-Service-to-Revenue ratio will cease to be worrying. Put simply, we do not have a debt sustainability problem, but a revenue challenge which we are determined to tackle to ensure our debts remain sustainable,” he explained.
Buhari also spoke on the poor performance of oil revenue.
“The 2021 ‘Budget of Economic Recovery and Resilience’ is based on a benchmark oil price of 40 US Dollars per barrel, oil production of 1.6m b/d, and exchange rate of 379 Naira to US Dollar. Furthermore, a Supplementary budget of 982.73 billion Naira was recently enacted to address exigent issues in the Security and Health sectors.
“Based on the 2021 Fiscal Framework, total revenue of 8.12 trillion Naira was projected to fund aggregate federal expenditure of 14.57 trillion Naira (inclusive of the supplementary budget). The projected fiscal deficit of 6.45 trillion Naira, or 4.52 per cent of GDP, is expected to be financed mainly by domestic and external borrowings.
“By July 2021, Nigeria’s daily oil production averaged one 1.70 million barrels (inclusive of condensates) and the market price of Bonny Light crude averaged 68.53 US Dollars per barrel.
“Accordingly, actual revenues were 34 per cent below target as of July 2021, mainly due to the underperformance of oil and gas revenue sources. Federal Government’s retained revenues (excluding government-owned enterprises) amounted to 2.61 trillion Naira against the proportionate target of 3.95 trillion Naira for the period.
“The Federal Government’s share of oil revenue (totaled) 570.23 billion Naira as of July 2021, which was 51 per cent below target, while non-oil tax revenues (totaled) 964.13 billion Naira. The poor performance of oil revenue relative to the budget was largely due to the shortfall in production, as well as significant cost recovery by NNPC to cover the shortfall between its cost of importing petrol and the pump price.
“The National Assembly will recall that in March 2020 the Petroleum Products Pricing Regulatory Agency (PPPRA) announced that the price of petrol would henceforth be determined by market forces.
“However, as the combination of rising crude oil prices and exchange rate combined to push the price above the hitherto regulated price of 145 Naira per litre, opposition against the policy of price deregulation hardened on the part of labour unions in particular.
“Government had to suspend further upward price adjustments while engaging Labour on the subject. This petrol subsidy significantly eroded revenues that should have been available to fund the budget,” he added.