Nigeria: From bogus budget to revenue losses

By Marcel Okeke

Uncharacteristically, President Muhammadu Buhari, known for his taciturnity, equable and unruffled mien, practically ‘lost his cool’ on December 31, 2021, while assenting to the 2022 Appropriation Bill and the 2021 Finance Bill. The President was visibly irked by the ‘huge additions’ to the original budget estimates that he handed over to the National Assembly on Thursday, October 7, 2021. Specifically he said: “I must express my reservations about many of the changes that the National Assembly has made to the 2022 Executive Budget proposal”, lamenting that “the 2022 Budget that I just signed into law provides for aggregate expenditures of N17.127 trillion, an increase of N735.85 billion over the initial Executive Proposal for a total expenditure of N16.391 trillion.” He complained further that “provisions made for as many as 10,733 projects were reduced while 6,576 new projects were introduced into the budget by the National Assembly”.

This implies that the National Assembly not only ‘hiked’ the N16.391 trillion budget presented to them to N17.127 trillion, but also ‘introduced’ additional 6,576 new projects into the document; thus making the budget much bigger, with a whooping deficit of N5.10 trillion. Notably, Mr President had vested much hope for improved revenue (in 2022) on the operations of Government-Owned Enterprises (GOEs). This much he assured the National Assembly while presenting the 2022 Appropriation Bill. According to him: “we have stepped up implementation of the strengthened framework for performance management of government owned enterprises (GOEs), with a view to improve their operational efficiencies, revenue generation and accountability.”  He said the 50 percent cost-to-income ratio imposed on the GOEs in the Finance Act 2020 has contributed significantly to rationalizing wasteful expenditures by several GOEs and enhanced the level of operating surpluses to be transferred to the Consolidated Revenue Fund (CRF). “I solicit the cooperation of the National Assembly in enforcing the cost-to-income ratio and other prudential guidelines during your consideration of the budget proposals of the GOEs, which I am also laying before you today”, the President pleaded with the National Assembly.

But unsurprisingly, the President said “we plan to finance the deficit mainly by new borrowings totalling 5.01 trillion Naira, 90.73 billion Naira from Privatization Proceeds and 1.16 trillion Naira drawdowns on loans secured for specific development projects.” And apparently in line with the President’s plea, the Senate, on Tuesday, 1 February 2022, tasked the GOEs “to make N3 trillion yearly to reduce Federal Government’s borrowings and deficits in the 2022 budget”. President of the Senate, Ahmad Lawan, who spoke during an interactive session on the need to improve Internally Generated Revenue (IGR) of the Federal Government, further charged the agencies to prevent wasteful spending, while promising that the Senate will be strict in its oversight duties.

All these however pointedly show that the ‘bloated’ 2022 Federal Budget is, from the outset, being threatened by paucity of funds. Senate Committee Chairman on Finance, Solomon Adeola, at the same IGR parley, lamented that there was insufficient funds for the implementation of policies and projects captured in the 2022 budget. Adeola said for government to reduce and eliminate deficit budgeting, which has characterized Nigeria’s budget over the years, effort must be made to minimise borrowing to fund projects. But the borrowing spree has continued unabated. The 2022 budget deficit is to be financed mainly by borrowings, with targets from domestic sources – N2. 57 trillion; foreign sources-N2. 57 trillion; multi-lateral/bi-lateral loan draw-down N1. 16tn; and privatisation proceeds, N90. 7 billion.

Unfortunately, the GOEs are in dire straits, as it were, with each of them performing far below their revenue targets. For instance, at the IGR confab, the Director General of NAFDAC, Prof Mojisola Adeyeye, lamented that the 2018, 2019 and 2020 budget of the agency were not passed by the National Assembly, leading to warehousing of revenues generated by it for capital expenditure. On his part, Comptroller General of Nigeria Customs Service, Col Hameed Ali (rtd), said some provisions of the 2022 Finance Act had robbed Customs of its operational mandate on some revenue collections. He specifically cited section 22 and 61(a) of the Act, incapacitating Customs from collecting some taxes like import duties. Ali said “when the law was signed, it did not state clearly the extent and scope of the taxes and levies in question”, adding “however, the amendment is so wide and open that it has hindered our ability to collect levies and other collections at NCS”. The NCS boss declared: “We have consulted with our lawyers and the conclusion is that the Act is confusing and if other revenue generating agencies decided to act on the provisions, they may decide not to collect duties and levies”.

In a similar vein, the Director of Finance, Nigeria Immigration Services, Prof Aba George, complained that the N400 billion the agency was supposed to generate as revenue this year is being cornered by a U.K—based firm handling most of its outsourced services and operations, adding that “contract on the outsourced services and operations given to the firm on behalf of NIS in 2003 gives government 33 per cent of proceeds, Immigration seven per cent while the remaining 60 percent is cornered by the firm.” Prof George said “this is our seventh time of tabling this complaint before the Senate or the House of Representatives; please rescue us from the hook of this firm.

“The contract was entered into without the knowledge of Immigration since 2003 and those behind it keep on renewing it and denying us about N400 billion revenue yearly. It is a rip-off and purely one-sided contract, bleeding Immigration and Nigeria financially,” George lamented.

These complaints galore point to the palpable revenue challenges facing the 2022 Appropriation Act. If these ‘traditional’ revenue-generating GOEs are fiscally handicapped and/or facing serious limitations or constraints arising from the Finance Act 2021 (which is supposed to guide their mandates), obviously the entire budget is imperilled. Already, it is almost certain that the N3 trillion revenue being expected from these agencies would turn out a forlorn hope. This scenario, without a doubt, leaves the Federal Government with the only window of internal and external borrowing to fund the budget. And, even this window is already taking the country irreversibly to the precipice of a debt trap. This is because, this year, it is estimated that the debt-to-revenue ratio would hit about 90 per cent, especially as politicians fund their electioneering towards 2023 general polls.

Already, speculations are rife that much of Government borrowings are going into funding recurrent expenditure rather capital items. Indeed, part of Government’s plan is to more than double the non-debt recurrent expenditure to about N7 trillion in 2022, from just about N3.5 trillion in 2021—which vividly portrays lack of political will or fiscal discipline to control expenditures largely financed through borrowings. Statistics show that as at September 2021, Nigeria’s total public debt stood at over N38 trillion (about $93 billion); yet, with unavoidable increased local borrowing this year, local debt alone by close of 2022 is projected to hit about N43 trillion—about 860 percent of Government revenue, according to a report by Augusto & Co.—a firm of public finance and management consultants. So, in truth, the budget faces a double whammy, namely poor funding and spiking public debt. What’s the way forward?

• Okeke, an Economist & Business Strategy Consultant lives in Lekki, Lagos