From Isaac Anumihe, Abuja

Federal Government said it is retaining subsidy regime funding in 2023 fiscal year with an estimate provision of N6.72 trillion

In her presentation of 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper (MTEF&FSP) in Abuja, Minister of Finance Budget and National Planning, Mrs Zainab Ahmed noted that the subsidy will be funded by the Nigerian National Petroleum Limited (NNPL) on behalf of the federation.
Meanwhile, the proposed estimate is higher than N4.19 trillion provided for as fuel subsidy in 2022 and the 2023 -2035 MTEF & FSP projections deviate from the projections in the National Development Plan (NDP) 2021-2025.

In the MTEF, real GDP growth it is projected at 3.75 per cent in 2023, from a revised projection of 3.55 per cent for 2022. Growth, according to her, is expected to moderate to 3.30 per cent in 2024 before picking up to 3.46 per cent in 2025 while
inflation rate is projected to average 17.16 per cent 2023, up from the revised average of 16.11 per cent for
2022; Upward pressure on prices is expected to be driven by the current effect of the global price surge due to the Russian-Ukraine war, domestic insecurity, rising costs of imports, exchange rate
depreciation, as well as other supply-side constraints.

The minister who spoke to a gathering yesterday comprising media representatives, members from Civil Society organizations and other stakeholders, explained that the provision for fuel subsidy next year is tied to two prevailing scenarios.

Giving an overview of oil & gas revenues and federally funded upstream project costs (2023 – 2025), the Minister elucidated on two scenarios that would warrant making provision for fuels subsidy next year.
“The projected fiscal outcomes in the medium term are presented under two scenarios based on the underlying budget parameters/assumptions, as follows: Scenario one – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for full year 2023, will remain and be fully provided for. Scenario two – the reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for. Additionally, there will be tighter enforcement of the performance management framework for government-owned enterprised (GOEs) that will significantly increase operating surplus/dividend remittances in 2023”, she explained, adding that, both scenarios have implications for net accretion to the Federation Account and projected deficit levels.

However, in her presentation she noted that the government, in the MTEF&FSP also, proposed two aggregate expenditures for 2023 fiscal year which the Minister tied to two scenarios.

“In this scenario, given the severely constrained fiscal space, it is not feasible to
make any provision for MDAs’ capital expenditure in 2023 beyond multilateral/bilateral loan-funded and donor- funded projects. The FGN’s 2023 aggregate expenditure is estimated at N16.98 trillion, which is N337.05 billion (1.9 per cent) lower than the 2022 budget. The sums of N20.29
trillion and N22.73 trillion are projected to be spent by the FGN in 2024 and 2025,
respectively”.
“In the second scenario, federal government 2023 aggregate expenditure is estimated at N17.99 trillion, N669.82 billion (3.9 per cent) higher than 2022. (Inclusive of GOEs). The sums of N20.29 trillion and N22.73 trillion are projected to be spent by the FGN in 2024 and 2025, respectively”, Minister explained.

Fielding questions on the status of new NNPLC in terms of remittance to the federation account, the Minister said the oil firm will not be remitting to federation coffers as was the old practice. However, she said it will pay taxes, royalties and dividends to the federation like every other business.

“The new arrangement has indicated that NNPC will not be contributing monthly to the federation as they used to in the past. But NNPC will be paying royalties, dividends and taxes. So, while the revenue might not be monthly, we will work on an arrangement on how this will be paid. And it is possible to work out an arrangement where the payments could be monthly or quarterly. So, I was just saying that, in the new arrangement regime, NNPC will not be contributing to FAAC on a monthly basis; but NNPC will still be paying taxes, royalties and dividends. We will be engaging the NNPC on how we expect this to come. We can negotiate how these remittances will be done either on a quarterly basis for example” she explained.

On why NNPC had not remitted money into the federation account in the last eight months that preceded its transformation, the minister said the organization was instructed to cover the cost of fuel subsidy.

“This is because the NNPC has been instructed to cover the cost of fuel subsidy on behalf of the federation. So NNPC is not paying the subsidy on its account and as I mean, they were not paying the subsidies that would have been remittances distribution; this is the arena that we seek to continue in 2023. It will still be a federation expenditure that we’re taking from the NNPC as a supplier of last resort”, she said.

Ahmed expressed hope that, by the time new refineries come up, the issue of subsidy would have been dealt with.

“I see a situation where maybe; we will soon have new refineries to fund the PMS and selling to the Nigerians. And that’s why it’s important for us to consider this issue of removal of subsidies very seriously because no marketer is willing to buy PMS after sourcing their foreign exchange and competing with subsidies. It can only be a government agency and in this case, we see the structure of the evaluation. NNPC has been paying for subsidy but they’re doing it on behalf of the federation; on the cost of the federation, even though they are the ones that have been paying. So, when they generate revenue instead of remitting the revenue, they’re using part of the revenue to fund the subsidy. That has been the arrangement and that is what will continue to be in place until we exit the first-time scenario. In reality, we have to consider what makes sense for the majority of the people and it doesn’t lie on the shoulders of the Ministry of Finance but the answer lies with Nigerians”, she said.

For 2023 fiscal year, federal government projected N6.34 trillion revenue earnings. Of the sum, only N373.17 billion or 5.9 per cent is projected to come from oil-related sources.

The balance of N5.97 trillion is to be earned from non-oil sources. The government, the Minister said planned an aggressive implementation of cost-to-income limits of GOEs.

“With these, the 2023 FGN Revenue is projected at N8.46 trillion (15.1 per cent or N1.51 trillion less than the 2022 Budget) but N2.12 trillion more than first scenario. Of this, N1.99 trillion or 23.6 per cent, is projected to come from oil-related sources, while the balance is to be earned from non-oil sources”, she explained.

On the current fiscal year revenue performance (year 2022), the Minister said federal government retained N1.63 trillion, 49% of the prorate target of N3.32
trillion.
She put FGN share of oil revenues at N285.38 billion (representing 39% performance), while
non-oil tax revenue was N632.56 billion – a performance of 84%. Companies Income Tax (CIT) and VAT collections
were N298.83 billion and N102.97 billion, representing 99% and 98% of their respective
targets.