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Friday, January 27, 2023

Nigeria’s 2023 Budget Assumptions are Fantasy in the Making

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Just as a young girl named Alice falls through a rabbit hole into a fantasy world of anthropomorphic creatures, Nigeria’s 2023 budget assumptions are overly unrealistically unachievable.

This is regrettable and unfortunate for a country beset by pestilential poverty, deteriorating infrastructure, red-hot inflation, and protracted foreign exchange scarcity.

A few weeks ago, President Muhammadu Buhari presented the 2023 budget of N20.51 trillion dubbed Budget of Fiscal Responsibility and Transition to the National Assembly.

Analysts at Meristem Securities in a recent report noted that in the four years (2018-2022), Nigeria’s actual budget expenditure has averaged 91 percent of budgeted while for the revenue the actual amount is 68 percent of budgeted.

The report stated that as of August 22, the country’s budget implementation has only been 64 percent of revenue, 83 percent of expenditure.

The total budgeted expenditure for 2023 of N20.51 trillion is 18.42 percent higher than N17.32 trillion in 2022.

A breakdown of the budget figure shows N5.35 trillion is earmarked for capital expenditure, N6.31 trillion for debt servicing, and N8.27 trillion non-debt restructuring.

It is important to note that debt service is expected to gulp 30.77 percent 2023 budget, while a subsidy of N3.36 trillion has been set aside for next year, which is the only provision made for 6 months, according to data from Meristem Securities.

“This means that a full-year subsidy would equal committing funds of up to N6.72 to an unproductive activity,” said analysts at Meristem Securities.

“We note that this is a substantial amount and therefore, emphasize the importance of phasing out the subsidy regime especially considering the controversy surrounding its genuineness,” said the analysts.

Despite higher oil revenue, only 27 percent of budgeted revenue has been achieved as of August 2022, largely due to oil theft and vandalism in the oil producing area and a subsidy payment that has become a waste of resources that would have been used to fund capital projects across the country.

The International Monetary Fund (IMF) has advised the government to redirect the money spent on petrol subsidy to support vulnerable households to reduce the impact of food shortages and inflation triggered by flooding and climate change.

“Nigeria could have benefited even more if there were more targeted ways of supporting people rather than the generalised fuel subsidies that are being used at the moment. So, oil prices have gone up quite significantly, but the amount of resources that are accruing to the budgets, to external accounts have been very circumscribed as a result of the very generalised subsidy that the country has,” said Abebe Aemro Selassie, Director, African Department, IMF.

“I think we have been long on record, flagging that generalised subsidies like this one are extremely costly, and secondly, they’re extremely regressive. So, they support families and households that are richer more than they do poorer households. A better policy in our view would be to find a way to redirect these resources to the most vulnerable households and supplement that with investments in health and education that Nigerians so desperately need. “When you have a big surge in prices, it is understandable that governments will want to do something to smooth the increase in prices, including fuel subsidies, but those should be temporary and phased out and communicated in a very clear way,” said Aemro.

The 2023 budget was prepared on the assumption of 17.10 percent inflation rate, which is wishful thinking when juxtaposed with the current inflation rate of 20.77 percent.

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