By Omoniyi Salaudeen
Notwithstanding the fiscal constraints necessitating the inclusion of an estimated N10.78 trillion borrowing projection in the 2023 budget, an analytical review of the current state of the affairs of the nation by a cross-section of financial experts shows that the economy might still be far from possible recovery.
According to analysts, there is no light at the end of the tunnel that the government is ready to depart from its old way of doing things.
They particularly noted with great concern that the trajectory of the economy remained significantly the same in the face of the vagaries of the international market price of crude oil as the major source of the nation’s foreign exchange earnings.
According to them, unless some drastic measures are put in place to increase the revenue-generating capacity, improve productivity, block leakages arising from petroleum subsidies and address the security challenge, the proposed deficit budget would put further stress on the economy by way of increased burden of debt servicing, aggravate inflation rate and reduce government spending on essential social services.
A former President of the Nigerian Institute of Bankers (NIB) and Professor of Economy at the Babcock University, Ilisan, Ogun State, Segun Ajibola, in a telephone conversation with Sunday Sun said: “Since the projected revenue is below the projected expenditure, it means that reliance will be on both local and foreign borrowings. And that will impact on debt burden and the economy because service obligations will increase.
“And, of course, it shows that there is pressure on the internal resources to be able to meet recurrent and capital expenditure. It poses the challenge of having to rework the revenue-generating capacity of the economy from all angles – personal income tax, company tax, and value-added tax.
“To do that again, they need to increase the capacity of the economy to generate income because tax comes from income. Even the excise duty and co are also related to the level of production in the economy.
“It shows that the economy is under some stress. We still depend on revenue which depends largely on the volume we can push to the international market and the ruling price at any point in time. We are already aware that the country cannot meet up with the OPEC quota because of oil theft, pipeline vandalisation, community unrest, and so on.”
For him, the only way to mitigate the total effects of all these is for the government to increase productive capacity and enlarge tax revenue sources.
“Presently, we are already moving from 1.2 million barrels per day to 1.4 million barrels. If those areas are well handled, the volume of production will increase. If that can be sustained, it means the government’s capacity to earn income will increase. And as such, they may be able to breach that projected deficit.
“For quite some time, government emphasis has been on expanding the tax net and the compliance rate. They can work on that so that all eligible taxpayers can be captured. As the Chairman of the Federal Inland Revenue Service recently said, tax utilization and provision of services that are due to the citizens is a way of encouraging tax payment. They can work on that to widen the tax net. As a country, if we can bring in those who are not in formal employment we will do better than we are doing now. By so doing, tax revenue to GDP will increase.
“At present, we have one of the lowest in Africa. The major challenge is compliance. If all these can be corrected, we will do much better without necessarily over-taxing the ordinary citizens,” he added.
Prof Ajibola further identified inflation as a major factor that must also be frontally addressed to improve the quality of lives of the citizenry.
“Inflation is a very stubborn monster that is too difficult to tame. The flood that is happening now and the impact on food production is another challenge. That is a natural occurrence that will affect the prices of food items and inflation.
“We only pray that they will be able to tame inflation because under-inflation everybody is a loser, including the planners, the consumers, and the leadership. So, how we would be under the present circumstance depends on how we can tame that monster called inflation,” he said.
Similarly, the highlight of the analysis of the MD, Cowry, and Assets Management, Mr Johnson Chukwu, is on the effects of deficit borrowing on the performance of the economy, stating that “it will further worsen our debt burden.”
His words: “The government is projecting to borrow about N10. 9 trillion, while projecting to earn about N9 trillion, meaning they are going to borrow more than the total revenue. This means that even if all income generated goes to the Federal Government alone, we will still not be able to finance the budget from the incoming revenue. This, for me, is of great concern.
“Currently, our debt service to revenue is more than 100 per cent. For me, it is very worrisome that we have prepared a budget like that. If it passes the scrutiny of the National Assembly, it becomes an extant law that the government has to implement. The concern that it will further worsen our debt burden is real. And I think the Minister has alluded to that when she said that we may no longer be able to fund the capital projects from the budget.”
He outlined some of the critical areas that needed to be addressed to mitigate the adverse effect of the current debt burden. These are subsidy removal, rationalization of the public sector, increase in productivity, inflation, as well as insecurity.
“I think the government should address some of those factors propelling this kind of budget structure. One of them is the issue of subsidy. If we take out subsidies from the budget, it will reduce the deficit from N10 trillion to about N7 trillion.
“If the government can focus on attracting the private sector to invest in infrastructure, it will further reduce government borrowing.
“If the government has the political will to rationalize the public sector as contained in Oransanye report, it will also reduce the cost of governance. If we can do all these, we will reduce the level of the budget deficit.
“Another area we have to look at is the issue of insecurity in the country. For me, these are the things the government can do to arrest the current situation.
“It is not likely that the fortune of the ordinary citizens will improve in the immediate future because if the government has to spend all it gets to pay a debt, it will mean that there will be less money to invest in social infrastructure -healthcare, education, security. These are symptomatic of a failed economy. And when the economy fails, everything will fail with it.
“But if we focus on the solution, in the next two or couple of years, we will begin to see improvement in the quality of lives of the people.
“Those who are running for the presidency should have manifestoes that will encapsulate the solution to all these problems. If the present government is sincere, they can take out some of those unpleasant policies so that the incoming government is not burdened from the inception.
“I believe government should be responsible enough to take out subsidy before the end of this tenure. That will free a lot of resources for the next government. You can imagine the new government having 6.7 trillion naira freed from subsidy at its disposal to focus on healthcare, education, security, and other social services. People will begin to feel the positive impact. If this government cannot take that decision, it behooves on new the government to take that decision immediately to free itself from the current situation we have found ourselves in.
“For me, the removal of subsidy is a necessary operation. If you want to address inflation, you have to increase productivity. If we make the economy productive by blocking the leakages arising from the subsidy, at the end of the day, productivity will bring down the prices.
“Today, we are a rent economy and that is why inflation has become obstinate. We have not in any way benefited from the the subsidy. We are the poorest country in the world in terms of the number of people living in abject poverty. We should take it now and bear the pain for a better future. If we take out subsidies, people will invest in refineries, we will begin to export refined products, and earn more foreign exchange which will in turn stablise the local currency and by extension bring down the inflation rate. Beyond that, if we begin to produce refined products and sell at a market-determined price, a lot of oil wells that have been shut down will begin to produce and have enough gas to supply to the power generating plants to produce more power for the manufacturing companies and domestic consumers.
“But we have decided to tie ourselves leg and feet, feet and hand to the back and we are hoping that miracle will happen,” Chukwu lamented.
The former President of the Lagos Chamber of Commerce and Industry (LCCI), Yusuf Amuda, while also expressing concern over the budget deficit said: “The 2023 Federal Government budget has further amplified the troubling fiscal outlook for the economy. Expenditure continues to accelerate amid consistent weak revenue performance. “We have a budget of N20.51 trillion and revenue projection of N9.73 trillion. This is a deficit of 10.78 trillion. In all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years.
“We are also likely to see an acceleration of CBN financing of fiscal deficit given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion.
“With additional new borrowing of N8.8 trillion, the debt profile will be inching close to N50 trillion by May next year. If we take into account the borrowing from the CBN (ways and means), which is currently about N20 trillion, we will have a total debt of N70 trillion by end of 2023. This should be a cause for concern.
“A number of issues need to be addressed to achieve our fiscal sustainability aspiration. Government-owned enterprises managing huge economic assets need to justify the value of assets at their disposal. Returns on investment in those assets have been consistently sub-optimal for many years.
“Oil revenue performance should be much better given the prevailing global oil price. Lapses in the petroleum upstream ecosystem need to be urgently addressed. This includes the impunity of crude oil theft and vandalism of oil facilities.
“The foreign exchange policy regime is adversely impacting on the business environment and needs to be urgently addressed. Weak private sector performance would naturally affect non-oil tax revenues.
“There is a need for budget reforms. The budgetary appropriations must reflect urgent national economic priorities. There are also concerns about value for money and other forms of fiscal leakages. The Auditor General of the federation had severally raised these concerns.
“The road fund bill needs to be revisited to ensure sustainable funding of road infrastructure across the country. Budget funding for roads cannot guarantee quality road infrastructure for a country over 200 million people.
“The macroeconomic and regulatory environment needs to improve to inspire the confidence of investors in infrastructure within the PPP framework. Current macroeconomic and foreign exchange policy regimes are major disincentives to investors in infrastructure, especially foreign investors. We need the inflow of such foreign capital to complement government funding in infrastructure.
“The incoming administration would have to grapple with profound fiscal headwinds given the ominous fiscal outlook for 2023. As campaigns progress, politicians need to manage expectations. Tough policy choices will have to be made to reset the economy.”