•Asks FG to avoid further borrowing, mobilise enough revenue

By Victor Ahiuma-Young

The Nigeria Employers Consultative Association, NECA, has expressed concerns over the 2023 national budget, saying poverty, unemployment, rising debt profile, and others are not likely to change as President Mohammad Buhari, signs N9.73 trillion estimated appropriation to law today.

The umbrella body for employers and voice of business in the country said it was imperative for the government to effectively mobilize and strengthen all available revenue sources to avoid financing the budget through high-interest-rate borrowing, thus increasing future debt service.

Speaking with Vanguard on the 2023 Budget and its implication for business, the Director-General of NECA, Wale-Smatt Oyerinde, said:  “The “Budget of Fiscal Sustainability and Transition” as it is called, was designed to achieve, among other things, the strategic objectives of the National Development Plan 2021–2025.

”With estimated N9.73 trillion and N21.83 trillion budgeted as revenue and expenditure respectively and a fiscal deficit  provision of N12.1 trillion, the budget is ambitious while there are concerns about its basic fundamentals.

“The ‘rushed’ passage of the budget by both chambers of the National Assembly calls for concern as this could not have enabled the wide consultation of critical stakeholders whose input would have added value to the budget proposal.

Analysis

“The US$75 per barrel oil price assumption for 2023 looks realistic, given that the commodity averaged $99pb in 2022 even as OPEC+ remains fixated on regulating oil production to stabilize energy prices.

”However, global recession fears in 2023 could dampen oil demand with an adverse effect on prices. The oil production benchmark of 1.69 million/barrels per day also seems somewhat ambitious.

“The combination of factors such as large-scale oil theft, frequent shut-ins, vandalism, and International Oil Companies, IOCs’ divestment have continued to depress oil production in 2022.

”According to the National Bureau of Statistics NBS, crude production averaged 1.2 million/per day in Q3-2023, the lowest level since 2013. With continued fuel subsidy payment in 2023, the likely gain from global increasing crude oil prices would have an insignificant effect.

”The resultant pressure on revenue will further deny government the needed funds for developmental projects.

“Also of concern is the Exchange Rate of N435.57/US$. The benchmark rate does not reflect the fair or fundamental value of the local currency. In a fact, the naira traded at N461 per dollar on The Nigerian Autonomous Foreign Exchange Rate Fixing, NAFEX window by end-December 2022 and could likely fall further amid lingering liquidity issues.

”The inflation benchmark of 17.2% is somewhat realistic and this requires effective coordination of monetary and fiscal policies to address the legacy factors driving consumer prices – insecurity, foreign exchange, FX-pass-through effect, high energy prices, fiscal deficit monetization, etc.

“Aggregate federal government revenue for 2023 was set at N9.7 trillion. The bulk of the revenue (55 per cent) is expected from independent sources; 25 per cent of the proposed revenue is expected to come from non-oil sources, while 20 per cent is from oil sources.

”The target yet again appears ambitious going by the persisting challenge around revenue generation in the country. The historical trend shows that Nigeria has failed to meet (let alone surpass) its revenue target in the last six years.

”Going by the budget implementation report, Nigeria achieved 64 per cent of its prorated target between January and August 2022. While non-oil revenue exceeded its prorated target within the period, oil revenue achieved a dismal 27 per cent performance.

”If unaddressed, the oil sector could be a drag on Nigeria’s revenue performance in 2023. Woeful revenue performance portends serious implications for fiscal sustainability.

A cursory look at the fiscal deficit target of N12.1 trillion marks the highest deficit position since 1999 and is 64 per cent higher than 2022’s target. Between January and August 2022, the actual deficit (N5.3) trillion exceeded the prorated target of N4.9 trillion.

”Obviously, the actual deficit for 2022 would exceed the N7.4 trillion planned for the full year. Going by historical antecedents, compared to previous budgets, higher-than-expected expenditure amid unimpressive revenue outturn would widen the actual deficit position beyond the N12.1 trillion budgeted.

”This deficit position (which will be financed mostly by debt) is not sustainable. It would see government’s debt servicing costs trending higher amid a high-interest environment locally and globally. It, therefore, beckons on the government to devise innovative income-earning strategies.”

Our concerns

Expressing its concerns, NECA’s Director-General, singled out increasing tax regime, rising debt, recurrent expenditure, and capital expenditure, saying “while organized businesses continue to grapple with a myriad of challenges, it was disheartening to see the Tertiary Education Tax, TET, increased from 2.5 percent to 3 percent.

”While the need to fund tertiary education should be a priority, it should not be done at the expense of organized businesses whose tax exposure in the form of Corporate Tax has crossed the 35 percent mark.

“Without significant improvement in the government’s revenue position by 2023, there is a high possibility that the debt portfolio will reach an unsustainable threshold. The continued reliance on the debt-to-GDP ratio, rather than the debt-service-to revenue-ratio, in describing the debt situation tends to hide the true picture of Nigeria’s unsustainable debt position. While debt financing is part of a developmental process, especially when funding capital expenditure, the recent recourse to borrowing to pay salaries indicates how weak the revenue mobilization capacity of the government is.

“The approved budget shows that government’s priority was tilted towards spending which affects immediate needs rather than those that support future productive capacity. Nigeria’s infrastructural deficit is enormous and increases with time due to past negligence and a growing population. It is expected that more attention could have been given to strengthening the nation’s productive capacity and keeping it on the path of growth.

Appeals to govt

“We urge a high level of fiscal discipline to make the implementation of the 2023 budget a reality first and a success. It is imperative for the government to effectively mobilize and strengthen all available revenue sources to avoid financing the Budget through high-interest-rate borrowing thus increasing future debt service. To realize the Federal Government’s investment commitment to the National Development Plan, budgetary allocation for Capital Expenditure must be significantly increased in 2023 and beyond.

“In the deliberation and preparation of the implementation framework for the 2023 budget, due consideration must be given to two key areas: Revenue Mobilization and Debt management as well as incentives for the Private Sector to play the key role expected of it in infrastructural development among others.”