Experts flag use of debt, tax burden to fund 2022 budget

Economic and business experts have cautioned the federal government against the use of debts and additional tax burden on businesses to fund budgetary provisions as it turns detrimental to the economy in the long run.

This was discussed at a roundtable analytical conversation on the 2022 budget hosted by the Lagos Chamber of Commerce & Industry (LCCI) on Tuesday with the theme budget analysis for business intelligence.

To fund the 2022 budget, the government plans to raise N10.74 trillion through a contribution of 35 percent from oil-related sources and 65 percent from non-oil sources, while a deficit of N6.39 trillion exists.

Over the years, the government has borrowed consistently to fund its budget, a This has continued to push up the cost of debt servicing, which has tripled since 2015 to N35 trillion as of June 2021, according to data from the Debt Management Office (DMO).

Yet Zainab Ahmed, Minister of Finance, Budget & National Planning, said that the N6.39 trillion deficit is to be financed mainly by borrowings from domestic sources, foreign sources, multi-lateral /bi-lateral loans drawdowns, and privatization proceeds.

Bismarck Rewane, economist and Chief Executive Officer (CEO), Financial Derivative Company, explained that as the government relies more on borrowing to fund its budget, it will result in a higher debt burden and servicing costs which will weigh on capital expenditure.

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He advised that rather than burdening businesses with additional taxes and also increasing the country’s debt profile, FG can explore other viable options such as addressing the country’s fiscal challenges, encouraging investment inflow for higher revenue generations, among other things.

“Investment is a catalyst for growth and the impact of an investment is largely dependent on its multiplier effect, strategic investment in labor-intensive sectors will unlock idle resources, boost productivity, spur output growth and ultimately increase government revenue,” he said.

Speaking on its fiscal deficit challenges, He said that the government running a fiscal deficit is not a bad thing because it could be a countercyclical move, unfortunately, the deficit spending has not yielded the intended impact on the economy nor has the fiscal spending complemented with adequate domestic and foreign investment.

“To address the country’s fiscal challenges, the government needs to diversify its revenue base, increase accountability and transparency in public finance to stop unnecessary overhead cost and leakages, this will ensure that the objectives of fiscal policy are achieved,” he said.

Rewane also advised that the government propels promising sectors like agriculture, manufacturing, ICT, trade, transport, and construction for success through enabling and friendly policies, adding that policy and sector reforms to boost investor confidence and trigger investment flows must be implemented.

Francis Meshioye, Chairman of, Manufacturers Association of Nigeria (MAN), Ikeja branch said that rather than stressing local manufacturers with tax burdens detrimental to business operations, the government should implement policies that will help them thrive locally, regionally, and globally.

“The uncertainty arising from regulatory burden and complexities in government’s tax drive were undermining the manufacturing sector’s ability to successfully launch new businesses, expand existing ones, and create jobs,” he said.

He added that if manufacturers are competitively positioned to participate in the ongoing Africa Continental Free Trade Area (AfCFTA), they can significantly improve their contribution to government revenue and economic growth.

In his remarks, Michael Olawale-Cole, LCCI president said the 2022 budget size reaffirms the commitment of the government to pursuing an expansionary fiscal policy to stabilize growth and deepen the diversification of the Nigerian economy however some key factors were overlooked which may truncate expectations.

“The government needs to re-assess the country’s debt sources to borrow at lower rates or access more zero-interest loans like the Sukuk while it watches closely its rising recurrent expenditure especially for personnel cost,” he said.

He advised that the revenue and capital expenditure performance of the 2021 budget which indicates the fiscal resilience of the Nigerian economy should be consolidated for better outcomes in the 2022 fiscal year.

“A higher non-oil revenue projection in comparison to oil revenue if effectively implemented and actualized will minimize the impact of external shocks, arising from oil volatility, on the economy,” he added.

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