Experts outline steps needed to solve FG’s revenue crisis
As the federal government continues to grapple with low revenues, economic and financial experts have stressed the need for the government to stem oil theft and expand the tax net, among other measures.
Speaking during the ministerial presentation of the 2023 budget in Abuja on Wednesday, Zainab Ahmed, minister of finance, budget and national planning, revealed that the government recorded a deficit of N5.33 trillion between January and August 2022, which is N430.82 billion above the prorate level.
She said as at August 2022, the federal government had retained revenue of N4.23 trillion, which was 64 percent of its N6.65 trillion revenue target for 2022.
She said the aggregate expenditure for the 2022 amended budget is N17.32 trillion, adding that the pro-rata spending target from January to August was N11.55 trillion.
“The actual spending as of August 31 was N9.56 trillion; Of this amount, N3.52 trillion was for debt service, N2.89 trillion for Personnel costs, including Pensions and N1.78 billion was released for capital expenditure,” she said.
Speaking on the 2023 budget, Ahmed reiterated that revenue generation in Nigeria remained a major fiscal constraint, adding that the systemic resource mobilisation problem had been compounded by recent economic recessions.
“Bold, decisive and urgent action is urgently required to address revenue underperformance and expenditure efficiency at national and sub-national levels,” she said.
Subsequently, the key parameters and other macroeconomic projections driving the medium-term revenue and expenditure framework have been revised in line with the emergent realities, such as the GDP growth rate, oil production and price benchmark, inflation, exchange rate among other economic indices.
According to her, the total revenue available to fund the 2023 FGN budget is estimated at N9.73 trillion, of which 20 percent of projected revenues is expected from oil-related sources, while 80 percent is to be earned from non-oil sources.
“Overall budget deficit for 2023 is N10.78 trillion which represents 4.78 percent of GDP and will be financed mainly by borrowings with N7.04 trillion from domestic sources, N1.76 trillion from foreign sources, N1.77 billion from multilateral and bilateral loan drawdowns and N206.18 billion from privatisation proceeds,” the minister said.
Muda Yusuf, chief executive officer of Centre for Promotion of Private Enterprise, said the government needs to implement the removal of subsidy because it is taking up so much money from the government’s purse, adding that the issue of oil theft needs to be addressed.
Muda said oil theft must be addressed, noting that Mele Kyari, group chief executive officer of Nigerian National Petroleum Company Limited, said recently that Nigeria was losing $1.9 billion monthly to crude oil theft.
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“According to the assumptions of the 2023 budget, the exchange rate for the conversion of the country’s dollar revenue is N435 but it should be higher than that because in the open market it is over N700 to a dollar,” he said.
Yusuf added that there are some government-owned revenue-generating agencies that are not remitting what they are supposed to; hence, there is need for the political will to compel them to remit what is due to the government.
Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, said the government needs to extend the tax base to capture more potential tax payers.
“We need to further expand our tax net to include those that are not currently paying taxes but are making taxable profits,” he said.
“The federal government can also intensify its economic diversification agenda to boost the non-oil revenue leveraging commodities and other natural resources,” Abiola Gbemisola, assistant manager, equity research at FBNQuest, said.
He added that the government should also strengthen its ease of doing business to attract more businesses and also boost the business environment for existing businesses to thrive.
According to the minister, total public debt as a percentage of GDP stood at 23.06 percent as of June 30, 2022, which is within the 55 percent threshold recommended by the Bretton Woods Institution as well as Nigeria’s self-imposed limit of 40 percent set in the Medium Term Debt Management Strategy 2020-2023, including the outstanding balance on CBN Ways & Means Advances.
“The federal government will continue to utilise appropriate debt management tools to streamline the cost and risk profile in the debt portfolio, including through concessional loans, spreading out of debt maturities to avoid bunching, and re-profiling of the debt maturities by refinancing short-term debt using long-term debt instruments,” she said.
Ahmed revealed that the president has approved plans to securitise the Central Bank of Nigeria’s N20 trillion-worth Ways and Means portfolio over in a 40-year period with an interest rate of 9 percent, adding that payment has been ongoing for the interest component at the current rate charged on the Ways and Means Advances.
Ways and Means Advances is a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.