The Nigerian government’s ambitious 2024 budget faces a tightrope walk, with its success heavily dependent on curbing oil theft and boasting non-oil revenue, a review of the budget document shows.
President Bola Tinubu signed the N28.7 trillion 2023 Federal Government budget on Monday after lawmakers raised the budget by N1.2tn to N28.77tn from the earlier proposed N27.5tn by the Executive.
This indicates that it has to earn more money. Oil is a major source of income. In the budget, the government has planned with the anticipation that oil will sell above $78 per barrel and Nigeria would produce at least 1.78 million barrels per day (bpd).
Analysts have projected oil prices will trade higher than Nigeria’s 2024 budget as three big Wall Street banks have set their 2024 Brent price projections at between $83 per barrel and $90.
JP Morgan has the lowest price forecast after Citi, at $83 per barrel of Brent, while Bank of America is the most bullish, expecting Brent to average $90 per barrel in 2024. Morgan Stanley sits in the middle with a price forecast of $85 per barrel.
This could be positive for the Federal Government and may even allow for some savings if only production could meet the projected benchmark.
“The oil theft situation is a major threat to the 2024 budget,” said Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies. “If the government doesn’t take decisive action to curb these criminal activities, it will be difficult to meet the budget’s revenue targets and implement its planned projects.”
The pain of this large-scale theft and vandalism, as well as decades of under-investment in infrastructure, was so severe that last April, the country produced less than one million barrels of oil daily, far below its 1.8mn bpd Organisation of Petroleum Exporting Countries quota.
The country’s oil production improved to 1.37 million barrels per day in November, an OPEC survey, which cites secondary data sources, said. However, it is still not close to the 2024 budget benchmark of 1.78 million bpd.
Revenue from non-oil outpaced that of oil by N1.5 trillion in 2022, due to factors such as oil theft – which cost Nigeria at least $2bn between January and August 2022 alone and caused oil production to dip.
Still, experts like Peter Medee, associate professor of economics at the University of Port Harcourt, insist that Nigeria cannot thrive on revenue from non-oil sectors alone.
“Oil is the nerve centre of Nigeria’s economy; If anything happens to oil production, it means that 60 percent of revenue is gone,” Medee told Al Jazeera.
To achieve the projected revenue of N18.32 trillion, the federal government estimates Oil revenue at N7.68 trillion, Government Owned Enterprises are expected to contribute N4.07 trillion, non-oil taxes are projected to be N3.52 trillion, independent revenue is set at N1.91 trillion, minerals and mining will account for N4.55 billion, while other revenue sources will bring in N1.13 trillion.
“There are risks to non-oil revenue growth, including the harsh macro environment, sustained FX weakness, and high inflation levels,” Veitiva Capital, a financial service firm said in its 2024 outlook.
According to Nigeria’s budget document, the overall budget deficit is N9.18 trillion for 2024. This represents 3.88 percent of GDP, and the government is betting on debts (N7.83 trillion) and proceeds of privatisation (N298.49 billion) and drawdown on multilateral and bilateral loans secured for specific development projects (N1.05 trillion) to finance the deficit.
“So, we’re relying less on borrowing and more on revenue and I think you have to take the two together. I think we’re very optimistic about the improvements in revenue that will take place,” Wale Edun, minister of finance and coordinating minister of the economy said after the signing of the 2024 budget.
He added, “We bringing order to government borrowing, so Ways and Means are being eliminated by taking the funding that is required from the market, as opposed to from printing of money by Central Bank”.
The Federal Government is also planning to kick-off plans to boost its tax-to-GDP ratio to at least 18 per cent in three years, a move that is part of a push to curb its reliance on borrowing to finance public spending.
According to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, the plan is to “make the rich pay what is fair, and those who are too poor can be protected. We also envisage a reduction in the corporate income tax rate to below the current effective rate of more than 40 percent to help boost business.”
He said, “We will find a way to create structures and systems around what taxes can be imposed, how it can be collected, who can collect it and how it should be accounted for.
“The goal is to slash the number of taxes down to single digits. We just identified the top eight, giving us 99 percent of the taxes, so we keep them, and the rest we get rid of.
“If people know that the government knows their income, where they are, and if they haven’t been paying their taxes, if we declare an amnesty, they will show up.”
Taiwo recently revealed that the Presidential Tax Committee doesn’t intend to raise taxes. Instead, he explained that the committee’s goal is to “harmonise revenue collection” to lessen the tax load.