Experts are at a loss as to how Nigeria will generate enough revenue to fund its proposed N26.01 trillion budget for 2024, which is 18 percent higher than this year’s.
This is because, for many years, the country has struggled to meet its revenue target and the variance keeps getting wider ever since the 2014 global collapse in oil prices that sent the oil-dependent nation to its first recession in a quarter of a century.
“All the government programmes to increase revenue have failed. Except for growing ‘independent revenue’ from Federal Government-owned agencies,” Seun Smith, a public finance analyst, said. “Even if the new tax reform committee is relatively successful, I expect it will take a few years to really show results.”
The Federal Inland Revenue Service (FIRS) had in June announced plans to generate a total of N25 trillion for the country in 2024, more than double the N10.1 trillion collected in 2022.
“I suspected the FIRS target for non-oil would be unachievable,” Smith said.
President Bola Tinubu had on Monday proposed a N26 trillion ($34 billion) budget to foster a 3.76 percent growth in 2024.
BusinessDay’s analysis showed the Federal Government plans to spend 61.63 percent of its planned 2024 on personnel and debt service costs. The personnel and pension costs of N7.78 trillion and the debt service cost of N8.25 trillion make up N16.03 trillion out of the N26.01 trillion 2024 budget.
Also, the amount budgeted for personnel and pension costs is expected to increase from N5.87 trillion in 2023 to N7.78 trillion in the 2024 budget.
“It is the failure of past efforts that directly led to CBN deficit financing and the massive growth of the Ways & Means portfolio which has only been recently reduced due to securitisation,” Smith said. “Again, these over-ambitious revenue targets led directly to our current debt crisis.”
Olaolu Boboye, senior analyst at CardinalStone Partners, said it is unclear if the government will be able to meet its crude oil production target, given the production constraints caused by oil theft; hence it will be tough for them to meet up.
The assumptions of the 2024 budget include the oil price benchmark of $73.96 per barrel, oil production of 1.78 million barrels a day, and an exchange rate of $700.
“The government’s proposed budget is unprecedented, and we do not have adequate financing to meet its ambitious goals,” Boboye said.
He noted that although oil production could provide some relief, it is limited and the non-oil sector also faces some challenges.
“The government is hoping to raise more revenue through the reforms it has implemented, including tax reform, fiscal reform, subsidy reform, foreign exchange convergence, and centralised revenue collection,” he said.
For Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, the country’s hope of raising revenue is dependent on the success of reforms such as tax reform, fiscal reform, subsidy reform, foreign exchange convergence, and centralised revenue collection.
“The exchange rate could pose a major challenge as it will affect the cost of many things, especially capital projects,” Yusuf said.
The naira closed at a record low of 848 per dollar on the official market on Tuesday, according to data from FMDQ, as dollar shortages persist.
That’s 9 percent lower than the closing rate of N778/$ on Monday, representing the biggest single-day decline this month.
The currency also fell to a low of N1,050 per dollar on the parallel market amid strong demand for dollars.
“The government may need to revise its optimistic revenue projections,” Yusuf said, adding “that another plan to offset this is to provide a supplementary budget which is usually the norm”.
Prior to 2014, the federal government’s revenue shortfall – that is the variance between actual and budgeted retained revenues – was in the billion-naira range but with the collapse in oil prices, the difference has stayed within the trillion-naira range.
In 2014, the government’s actual retained revenues stood at N3.727 trillion, based on data obtained from the Central Bank of Nigeria’s quarterly reports. This led to a shortfall of N3.5 billion when compared to the N3.731 trillion projected in the 2014 budget.
In 2015, when the country started feeling the heat from the fall in crude oil prices, the difference between actual and projected revenues ballooned 19.58 percent to about N675.89 billion. In that year, Nigeria realised N2.776 trillion, compared to a target of N3.452 trillion.
The gap, however, widened further at the thick of the economic recession that forced Africa’s biggest oil-producer to look to the non-oil sector to lift the economy from its precarious state. For the first time in many years, the non-oil sector brought in the highest amount of revenue for the government while the oil sector played a second fiddle.
However, the dwindling revenues have not stopped Nigeria from increasing its recurrent expenditure, which has more than tripled.
Of the total N2.621 trillion derived as revenue in 2016, non-oil revenue accounted for N824.22 billion while retained revenue from oil stood at N697.80 billion. However, even an increase in non-oil revenue could not narrow the shortfall between actual and budgeted revenues. The difference between the budgeted and actual revenues in 2016 jumped 32 percent to N1.234 trillion.
The same trend continued in 2017 and 2018 when the revenue shortfalls stood at N2.426 trillion and N3.2 trillion, respectively.
In 2017, the federal government’s actual revenue stood at N2.7 trillion, an 81 percent decline compared to a target of N4.9 trillion. For 2018, the government could only manage to generate N3.96 trillion, compared to the N7.16 trillion target in the budget.
In 2019, the federal government achieved revenue of N4.1 trillion, a 40 percent decline compared to a target of N6.97 trillion. For 202o, Nigeria realised revenue of N3.4 trillion, a sharp contrast from the projected revenue of N8.15 trillion.
For 2021, the federal government’s actual revenue stood at N4.64 trillion, a 69 percent decline compared to N7.89 trillion in the budget. In 2022, projected revenue was N7.48tn, actual revenue amounted N6.49 trillion.
“So again, I ask, what if 2024 expected revenues don’t materialise? What’s the plan for the downside scenario? Will there be a fiscal consolidation-focused contingency plan or will the CBN be raided again? I sincerely hope that “hope” is not the only strategy,” Smith said.