“It is not enough to be up to date; you have to be up to tomorrow”

— David Ben-Gurion, Israeli Statesman

On October 7, 2021, the President presented the 2022 budget, to the joint session of the National Assembly. It was christened “Budget of Economic Growth and Sustainability”. For the third year running, the Presidency has been able to present the national budget early enough to enable the statutory, full January to December implementation period. In compliment, this has been a departure from previous practice where budgets get approved, sometimes by the middle of the relevant year. In addition, it also gives clarity to policy makers and helps all stakeholders to effectively plan.

The total proposed size for the 2022 budget is N16.4 trillion as against current year’s budget of N14.6 trillion. In nominal terms, this represents a 12.5% increase. From the figures provided, total proposed revenue is N10.1 trillion as against the current year’s N8.1 trillion, representing a 25% increase. From the above figures, a deficit of N6.25 trillion, marginally lower than current year’s deficit of N6.45 trillion is envisaged. This deficit is expected to be financed by new borrowings, privatisation proceeds and drawdown on existing approved loans for specific projects. Recurrent expenditure, less debt service is budgeted at N6.83 trillion, 60% of which, or N4.11 trillion, is for personnel cost. Capital expenditure on the other hand, is budgeted at N4.89 trillion, representing 30% of total expenditure.

The provisional 2022 budget stands on the following assumptions:

Benchmark crude oil price of $57 per barrel as against that of the current budget set at $40 per barrel

Oil production of 1.88 million barrels per day, which is almost the same with current year’s budget of 1.86 million barrels per day.

Exchange rate of N410.15 as against current year’s rate of N379 per dollar

Target inflation rate of 13%. Current year’s budget rate is 11.95%

GDP growth rate of 4.2% as against 3% rate of 2021.

We shall return to these figures shortly.

In his presentation, the President explained the huge spending on the back of the current security challenge and the post-recession economic recovery and growth. He went further to state that the country is facing a revenue challenge rather than a debt sustainability challenge. Clearly, this assertion is against what many analysts believe. The government, therefore, hopes to grow revenue as per the GDP ratio quite significantly during the period; from 8% to 15% by 2025. To achieve this daunting goal, the president unfolded a few strategies which include, enhancing tax and excise revenues; reviewing tax waivers and concessions policies; improving Customs revenues using technology, and preserving the revenues derived from the oil and gas sector. It is our contention that while every move to improve the revenue base of the country is welcome, until the diversification of the revenue sources becomes effective, a lot of impact will not be made on the economy. Total revenue from oil and gas currently stands at about 80% of our foreign currency earnings putting the country at great risks of oil price and quantity shocks. The budget under review provides that out of the estimated total revenue of N10 trillion, oil and gas alone would account for over N3 trillion or 30% of the revenue.

In terms of absolute numbers, the 2022 budget is the largest so far. Not too long ago, we saw budget figures of N6 trillion in 2016 which went up to N8.9 trillion in 2019 and further rose to N10.6 trillion in 2020 and later revised to N10.8 trillion largely due to the impact of Covid 19 pandemic and then N13.08 trillion in 2021. So, the projection of N16.4 trillion is large on the face of it. However, this same budget assumes an inflation rate of 13%, up from an inflation rate of almost 12% in the current year. Therefore, an increase in absolute figures of 12.5%, basically leaves the numbers unchanged. So, in real terms, the 2022 budget is not any different from the 2021 budget. Now applying this number to the population which is estimated to be growing at close to 3% leaves the expenditure per head dropping when applied on a yearly basis.

On the assumptions made for the 2022 budget estimates, we consider that the benchmark price of $57 per barrel is very realistic. Given the current price regime of over $80, which from all indications will remain for a while, this benchmark would leave the economy with significant surplus, which would accrue to the Excess Crude Account (ECA). However, given the average production level in the current year, which stands at about 1.2m barrels per day, it may be difficult to expect that the projection of almost 1.9m barrels per day would be met. The benchmark exchange rate at N410.15 is only realistic to the extent that it is the official rate considering that the rate at the unofficial market is gone beyond N570 per dollar. Besides, if the report that some key members of government are calling for further devaluation of the Naira is anything to go by, then the benchmark rate may not hold for most of 2022. Target inflation and GDP growth rates also appear not to be realistic as we can see from average inflation rate of 17% this year and average GDP growth rate of about 2% at the moment.

Drilling down further, 70% of the budget is expected to go into Recurrent expenditure while 30% would go into Capital expenditure. This allocation formula remains the albatross of the Nigerian economy. Recurrent expenditure basically has to do with payment of salaries and allowances of public workers and their dependants, whose number is no more than 1 million people, while the rest of the close to 200m people would be impacted by just 30% of the budget by way of Capital expenditure. This column maintains that there is a need for an urgent and serious conversation around this issue. Even if the revenue of the country miraculously doubles, and this matter is not addressed, the country will make little or no progress. Other than salaries and allowances, there are also humongous numbers that must be interrogated. These include statutory transfers to the National Assembly, Judiciary and other agencies of government totalling N768b. N2.3b is to be set aside for the entitlement of former Presidents and military heads of state. Another N4.5b is for retired Heads of Service and Permanent Secretaries. There is also a N1b set aside for severance benefits for retired Heads of government agencies and parastatals. The defence budget of N2.4 trillion is only defensible given the security situation in the country. However, it must be noted that some of the major causes of insecurity would include the rising level of poverty, the high rate of unemployment and the lack of economic opportunities experienced by a growing number of the youth population. Everyone agrees that it is better to repair a pothole than to spend money building a clinic that will treat the victims of the gaping pothole.

There is still the big elephant in the room, which is the debt profile of the government. Like has been highlighted earlier, embedded in the budget is a deficit of N6.25 trillion to be financed by debt. Also provided for, is a N3.6 trillion budget for debt service. This represents 22% of expenditure and 36% of total revenue! It is important to remember that as at June 30, 2021, Nigeria’s total debt stock stood at N35.5 trillion or $86.6b. While these numbers are disconcerting on their own, there is a more fundamental issue of revenue shortfalls which have been the experience of the country in the last few years. On the average, the country has only been able to deliver about 60% of its statutory revenue budget. What this automatically means is that the country has consistently busted its proposed deficit ceiling as its recurrent expenditure has always been met. Logically, the casualties of this short performance are capital expenditure and deficit financing. All these point to the fact that by the end of the budget period in 2022, the country may witness much more than the 36% of revenue going into debt servicing. The jury is still out as to the long-term sustainability of this practice. We leave that to the imagination of the perceptible public.

Beyond infrastructure which got a proposed spend of N1.45 trillion, the other areas that are of primary importance to the ordinary Nigerians are Education and Health. These two got N1.29b and N820b respectively. These numbers represent 0.8% and 5% of the budget respectively. In terms of the healthcare budget, it is important to remind us that in 2001, heads of government of the African Union, gathered in Abuja and committed to allocating a minimum of 15% of their annual budgets to healthcare. Some African countries have since complied. Ironically, the host country of the meeting where that decision was taken has only complied in breach! If not for the pandemic, the likelihood of getting the allocation up to the present 5% would have been very bleak.

There is no doubt that the country has a big problem. This problem is structural and must be resolved for the economy to start moving again in the right direction. The country has a problem with productivity. A situation where the country, for more than half a century, relies on a single product which the populace adds little or no value to for a large chunk of its foreign exchange earnings is not sustainable. No matter what it takes, the country needs to expand her productive base by getting more people to participate in economic activities. The poor participation in economic activities can be seen by a mere look at the GDP per Capita which was about $3000 in 2014 but has dropped to about $2000 today. The contradiction is that while the population is growing at about 3% per annum, GDP in some years have declined or at best remained flat for many years. The large population should ordinarily be a blessing in terms of labour force and larger demand market, but Nigeria’s has remained a burden as more people are thrown to the labour market with very little demand power. Theoretically, an expansionary budget should stimulate growth by way of creating jobs, increasing output, reducing poverty and even improving infrastructure for further growth. However, with increasing budgetary allocation on a yearly basis, poverty seems to be increasing with it. Presently, poverty rate stands at 44% as against 38% in 2015, and unemployment continues to soar at close to 35%. The major reason why increased spending doesn’t seem to stimulate the economy is that the spending is not on the right items. Increasing cost of governance and recurrent expenditure generally fuels inflation, impacting cost of living. So, it is recommended that the government must prune down its spending particularly in the recurrent space. Even with the little spending in Capital expenditure, the budget has always had many disparate and fragmented projects and spending on them, does not impact the economy positively. The spend in the transportation sector, particularly rail has started making impact on the economy. Government must spend on creating the enabling environment to spur the private sector to produce locally for consumption and export.

The vexed issue about ‘under recovery’, a euphemism for subsidy by the NNPC, continues to gulp a major part of the budget. This column had called on the government to use the opportunity of the massive fall in oil prices in 2020 to finally draw the curtain on subsidies. This call was not heeded at that time and the country has once again experienced an increase in oil prices which is good on one hand but poses its own challenge as subsidies rise. According to estimates coming from the Ministry of Finance, the country would spend a whopping N1.8 trillion on subsidies by the end of this year. Consumption is another factor that is rising. There is no agreement on the total daily consumption of PMS by Nigerians but those who should know argue that genuine consumption is around 30 to 40 million litres per day. However, according to the NNPC, consumption increased to 103 million litres per day as at May this year. Meanwhile DPR has put the actual daily consumption at 38.2m litres per day as at last year. The only way to tame this monster is to do away with subsidy.

We cannot conclude this discussion without acknowledging the state budgets. However, beyond the “Quabalistic” budget that runs into trillions of Naira, (despite how much of it is implemented), other states average about N100B and therefore are unable to significantly affect the outcome of this analysis.

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