Nigeria risks N10.82trn deficit in 2022 on unrealistic revenue target

Nigeria is faced with the risk of recording the biggest budget deficit in its history next year if actual revenues continue at the run rate of the past five years, BusinessDay’s analysis of budget implementation data shows.

President Muhammadu Buhari in his budget proposal to lawmakers on Thursday said the Federal Government was targeting revenues of N10.13 trillion and a deficit of N6.258 trillion in 2022.

However, if actual revenues look anything like what they have consistently done in the past five years, which is 55 percent of the budget on average, then Nigeria could be left with only N5.57 trillion in revenues. That then leaves Abuja with a deficit of N10.82 trillion, the highest ever and equivalent to a full year’s entire budget. The budget for 2020 for instance was N10.8 trillion.

“Nigeria is treading on a dangerous path with the continued rise in deficit which will eclipse the target in the budget given the unrealistic target set for 2022,” Ayodeji Ebo, an economist and head of retail investment at Lagos-based Chapel Hill Denham said.

“We need to cut down on non-debt recurrent expenditure and find more creative ways to increase revenues to suppress the deficit, otherwise Nigeria’s economic situation will get worse and there will be little or nothing left for critical capital expenditure,” Ebo said.

Nigeria’s non-debt recurrent expenditure is however not slowing down, at least not next year.

Buhari revealed plans on Thursday to spend as much as N6.83 trillion on non-debt recurrent expenditure, which includes personnel costs and overhead, in 2022, 41.7 percent of the total budget.

That’s the single largest expenditure item in the budget and equates to double of Nigeria’s total revenue in 2020.

The figure is also higher than the N5.35 trillion budgeted for capital expenditure and debt service of N3.61 trillion.

Read Also: Buhari’s 2022 budget proposal in 5 insightful numbers

“The budget for non-debt recurrent expenditure throws up concerns over the high cost of governance in Nigeria,” a consultant for one of the big four consulting firms told BusinessDay on condition of anonymity as he was not authorised to speak on the matter.

“A developing country with the limited resources Nigeria has should never spend the bulk of its budget on salaries and overhead costs when there are huge infrastructural gaps waiting to be addressed,” the person said.

Nigeria’s poor revenue performance has made analysts criticise the government for raising the bar each year despite obvious challenges in attaining revenue targets. Unrealistic revenue targets have often left the country with a much bigger deficit than planned.

The Federal Government of Nigeria spent N6.17 trillion more than it earned in 2020, leaving its fiscal deficit at 4 percent of Gross Domestic Product (GDP) – the highest in 21 years, according to Central Bank data analysed by BusinessDay.

The fiscal deficit, which is the difference between expenditure and revenue, widened to 6.1 percent of GDP in the first quarter of 2021, with analysts projecting 5 percent by year-end.

Nigeria’s ever rising fiscal deficit is yet another sign of the government’s ailing finances and makes a mockery of Abuja’s insistence to continue with a wasteful petrol subsidy regime that gulps north of a trillion naira per annum among other overly expensive ventures of a supposedly cash-strapped government.

The government has often resorted to borrowing to plug its fiscal deficit and the trend seems set to continue in 2022 even though the impact of the borrowings which have increased by over N20 trillion since 2015 has been negligible on an economy that has failed to grow in per capita terms since the same 2015.

In the N16.39 trillion budget proposal made by Buhari to lawmakers on Thursday, oil revenue is projected at N3.16 trillion, making it the single largest source of expected revenue for 2022, a 57.7 percent increase from the N2.01 trillion that was budgeted for this year (2021).

Non-oil revenues are estimated to rake in N2.13 trillion, up from N1.49 trillion in 2021 while independent revenues are projected to contribute N1.82 trillion.

Oil revenues took a beating in 2020 amid low oil prices and Buhari said in his presentation that lower than planned oil revenues were mainly responsible for actual revenues trailing the budget by 34 percent in the first six months of 2021.

Oil revenues may struggle yet again next year if Nigeria’s production challenges linger and the expensive petrol subsidy continues to erase the gains of higher oil prices.

The budget proposal is predicated on an oil price of $57 per barrel and daily oil production of 1.88 million barrels a day. This includes condensates of 300,000 to 400,000 daily.

Non-oil revenues, which are dominated by taxes, will also suffer if economic activity does not improve substantially, according to Muda Yusuf, the former director-general of the Lagos Chamber of Commerce and Industry (LCCI), one of Nigeria’s oldest private sector advocacy group.

“Taxes are a reflection of company profits and that in itself is a reflection of sales and revenues which is determined by economic activity, so the government must find ways to support the private sector to thrive if it is serious about recouping that much from taxes,” Yusuf said.

The government’s projected GDP growth rate for 2022 is 4.2 percent, a growth that if achieved will be Nigeria’s highest GDP growth in eight years.

The projection is more optimistic than that of the International Monetary Fund which expects the economy to post 2.6 percent growth in 2022.

Nigeria is also yet again expecting money (N63.38 billion) to come from Grants and Aid despite receiving nothing from this source since 2018, according to budget implementation reports available on the website of the finance ministry.

It is, however, a significant markdown from the N354.82 billion budgeted in 2021, which as at July had fetched nothing.

The total revenue available to fund the 2022 federal budget is estimated at N10.13 trillion and it includes the revenues of 63 government-owned enterprises as well as Grants and Aid.

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