• Saturday, July 20, 2024
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FG to borrow N11.3trn as 2023 budget deficit jumps

Fuel subsidy: Finance minister Ahmed links economic hardship as reason for extension

The federal government plans to spend N19.76 trillion in 2023, a 15.37 percent increase from the amount earmarked in the 2022 budget, Zainab Ahmed, minister of finance, budget and national planning, said Monday.

The projected deficit for the 2023 budget stands at N11.30 trillion, 54 percent higher than the previous budget’s estimated deficit, as the government digs in on a controversial petrol subsidy set to gulp N3.36 trillion in the first six months of the year.

This 2023 budget deficit represents 5.01 percent of estimated Gross Domestic Product (GDP) which is above the 3 percent threshold stipulated in the Fiscal Responsibility Act, 2007. The deficit could jump higher if the petrol subsidy practice does not end by June 2023 as President Muhammadu Buhari earlier said.

The government is also projecting a total revenue of N8.46 trillion, out of which N1.9 trillion is expected to come from oil-related sources while the balance is to come from non-oil sources.

The minister spoke at the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) interaction with the House of Representatives Committee on Finance in Abuja.

Ahmed said the budget is based on a crude oil price of $70 per barrel at an exchange rate of N435.57 per dollar. Oil production is estimated at 1.69 million barrels per day. Real GDP growth is projected at 3.7 percent while inflation is put at 17.16 percent in 2023.

She said it was assumed that petrol subsidy would remain up to mid-2023 based on the 18-month extension announced early 2022.

The minister said there will be tighter enforcement of the performance management framework for government-owned enterprises that will significantly increase operating surplus/dividend remittances in 2023.

She said: “The budget deficit is projected to be N11.30 trillion in 2023, up from N7.35 trillion in 2022. The draft 2023-2025 MTEF/FSP has been prepared against the backdrop of continuing global challenges occasioned by lingering Covid-19 pandemic effects, as well as higher food and fuel prices due to the war in Ukraine.

“Overall, fiscal risks are somewhat elevated, following weaker-than-expected domestic economic performance and structural issues in the domestic economy.

“Revenue generation remains the major fiscal constraint of the Federation. The systemic resource mobilisation problem has been compounded by recent economic recessions. Efforts will however focus on improving tax administration and collection efficiency.”

Ahmed added: “Crude oil production challenges and PMS subsidy deductions by NNPC constitute a significant threat to the achievement of our revenue growth targets; as seen in the 2022 Performance up to April.

“Bold, decisive and urgent action is urgently required to address issues of revenue underperformance and expenditure efficiency at national and sub-national levels.”

The minister, while responding to questions from members of the James Faleke-led committee, said oil production had declined in the country.

Ahmed said: “My understanding is that security agencies and the national oil company (NNPC), as well as the regulators, have been working very hard to find solutions and what they tell us is that they are beginning to see improvement.

“From the performance in April at 1.3 million barrels per day and by July it was 1.4 million. We do hope that the increase will be very significant because it’s costing us not just N3.2 billion in terms of security cost. But it’s costing us the revenue we have earned. At 39 percent, the oil and gas revenue as at April is at very low performance.”

Read also: NNPC renews five oil bloc licenses, expects to unlock $500bn

On the issue of the Morocco-Nigeria gas pipeline, she said: “The Federal Executive Council, a few weeks ago, approved funding for the feasibility study, which means that it’s still at the feasibility study phase. The national oil company can provide the details.”

Ahmed said the Petroleum Industry Act has given the Nigerian National Petroleum Company Limited some independence from the federation and has to perform in line with the laws of the Company and Allied Matters Act.

“A lot of the expenditure the federation used to carry will now be carried by NNPC Limited. NNPC will be paying taxes and dividends and we believe in the medium term the federation will end up earning more revenue. It also means that the NNPC will need to go and borrow money on its own. That will improve efficiency in the company. They have to pay dividends and royalties to the federation which they were not doing before,” she said.

According to her, the government is projecting oil production of 1.69 million barrels per day for next year.

“Based on the projection of NNPC , they are projecting that all the measures taken now are going to result in increased production and we hope it works out. If it doesn’t, the deficit situation we found ourselves in will be even worse,” she said.

The minister said Nigeria has been able to consistently, without fail, service her debt and the country does not have any projections, even in the near future, to fail in that obligation.

Ahmed said although the amount currently used in servicing debt in the country has overshot what was appropriated for in the budget, measures have been put in place to manage the situation.

She said: “In the budget, what we had planned was 60 per cent of revenue to debt but we had some months when the ratio goes up to 90 per cent.

“We actually follow the Medium Term Debt Management Strategy very strictly; the debts are not taken haphazardly and they are planned. They are appropriated and then we borrow against appropriation.’’