.Fuel subsidy to gulp N3.36 trn in 6 months
.Parameters ambitious, may not be met, say Yusuf, Chukwu
Defence and security, education and infrastructure received the highest allocation of 13.4 percent, 8.2 and 5.7 percent respectively of the N21.83trillionFederal Budget signed into law by the President Muhammadu Buhari on Tuesday.
The Minister of Finance Budget, and National Planning, Dr. Zainab Ahmed who disclosed this at the breakdown of the document Thursday further stated that N3.36 trn has been voted for fuel subsidy payments to cover the first six months of this year.
She said defence and security got N2.98trnrepresenting 13.4% of the budget, followed by N1.79trnwhich represents 8.2% was allocated to education sector, out of which the sum of N972.93bnwas provided for Federal Ministry of Education and it’s agencies as recurrent and capital expenditures while the UBEC, TETFUND and TERSEgot N821.56bn.
According to her,N1.24trn representing 5.7% of budget will be spent on infrastructure including provisions for works and housing, power, transport, water resources and aviation..
Zainab addd that an aggregate sum of N967.5bn has been provided for Statutory Transfers representing an increase of N223.38bn over the executive proposal.
According to her, “N1.15tnwhich represents 5.3% of the Budget has been allocated to health sector, N102bn provided for Federal Ministry of Health and it’s agencies as recurrent and capital expenditures including Hazard Allowance while Gavi Immunization Funds including counterpart funding for Donor supported programmes and (BHCPF) gotN128.63billion.
For poverty eradication programmes and social development, a total sum of N809.32bn which represents 3.7% of budget was voted to cater for the programmes including Social Investment, she said.
Meanwhile the federal government has insisted on its plans to remove fuel subsidy by June this year. Already, it has earmarked N3.36 trillion for fuel subsidy payments to cover the first six months of this year.The removal is in line with the 18-month extension announced in early 2022.
Removing fuel subsidy is in consonance with the spirit of the Petroleum Industry Act (PIA) which stated that subsidy should be phased out in 18 months after the signing into law the Petroleum Industry Bill.
Ahmed, noted that the nation’s revenue performance as of November 2022 stood at N6. 5 trillion, representing 87 percent of the set target of N7. 8 trillion for the year.
An analysis of the key contributors to the revenue collection according to the minister of finance and planning, includes an N586 billion collection from the Federal Government, Customs – N15 billion, independent revenue collection of N1.3 trillion as well as an N3.7 trillion collection from other sources of revenue.
Top sectors that contributed to the growth of the economy in 2022 include Agriculture at 23 percent, information and communications technology, trade, manufacturing with the oil and gas sector contributing just about 5. 6 percent.
The depreciation in the contribution of the oil and gas sector to the economy according to the minister represents the government’s resolve to diversify the economy.
As regards tax waivers, she announced the withdrawal of the pioneer status tax waiver for companies going forward.
She stated that a total of N6trillion had been forgone between 2021 to date under its tax waiver scheme. The plan, according to her, would help shore up the federal government’s revenue.
Meanwhile, the Special Adviser to President Muhammadu Buhari on Media and Publicity, Femi Adesina has explained why his principal could not remove fuel subsidy until now even after describing it as a fraud.
“Each time there is an effort to fight the fraud in the subsidy regime, you have to contend with labour, you have to contend with the people. The government needed to weigh its options because of the social consequences in it,” Adesina said Channels Television’s Politics Today on Wednesday.
During his campaigning ahead of the 2015 presidential election, Buhari had questioned the justification behind retaining fuel subsidy and described it as a fraud.
However, about eight years after, the Buhari administration announced recently that subsidy removal will come into effect in June 2023 after he must have completed his two terms in office.
Adesina blamed his principal’s inability to remove subsidy on Premium Motor Spirit also known as petrol on economic and social factors.
“In the beginning, his (Buhari’s) position was: what was subsidy really? But over the years it became evident that the country was bleeding, the economy was bleeding, there was a lot of hemorrhage which needed to be stopped and the time came and that time is now,” Adesina said.
He also said that petrol subsidy had stayed longer than required.
Meanwhile, two economic experts, Dr. Muda Yusuf and Johnson Chukwu on Thursday expressed serious doubts on the ability of federal government’s ministries, departments and agencies, MDAs to deliver on the parameters adopted in the N21.83 trillion budget recently signed into law by President Muhammadu Buhari describing the proposal as optimistic and ambitious.
Yusuf, a former director-general of the Lagos Chamber of Commerce and Industry, LCCI and Chukwu, the Group Managing Director/CEO Cowry Asset Management Ltd, who spoke with Raypower Fm during a phone in interview program, ‘Fact File’ also raised concerns over the debt to service ratio which they observed is worrisome.
With a projected expenditure of N21.83trn, budgeted revenue of N9.7trn, a deficit of over N12trn, some of the other assumptions in the budget include a price of $75 per barrel of crude oil, a production of 1.69million barrels per day, an exchange rate of N435 to the dollar and a Gross Domestic Product, GDP growth rate of 3.7percent.
But reviewing the projections, the experts noted that it would amount to a tall order to expect revenue generating agencies to achieve a hundred percent performance when they couldn’t attain that last year warning that the increasing debt service to revenue ratio portends bad omen for the economy even as they advocated urgent reform of the foreign exchange regime.
According to Yusuf, “I think the biggest issue around the budget is the gap between the expenditure and the revenue; we are highly constrained with revenue but we see the disturbing rate in which expenditure has been piling up. You could see even in a subtle way the president also alluded to that, that over N700billion was added to the budget, he expressed concern in a very subtle way but he requested that between the finance ministry and the National Assembly, they should go ahead and sort it out.
“So it is a major issue because already even in this budget there is debt service commitments of over N6trn, the total revenue is over N9trn, by the time you compare the debt service to the revenue, you are talking about something close to over 60 percent and in actual fact, at the end of the day we hardly achieve the total projected revenue by government.
“In 2022, debt service to revenue was over 80percent and at the end of the day, it may get to 90percent, so it is a major concern. It is also a good thing that the government is talking about removing the subsidy although that is easier said than done. By the time that should be taking place, this government has gone so the incoming government will have to deal with the issue of labour, we hope there will be no protests and all of that.
“So if that happens, we may begin to see relief in terms of the budget but generally, I think the budget is a bit ambitious not because it is too big for our economy. If you compare it to our economy, the budget is very small; you have an economy of over N200trillion and you are dealing with a budget of about N22trillion, it is still very small when compared to the size of the economy.
“But when we compare it to revenue, it is ambitious and when you have too much of deficit, it overheats the economy because that is when you now fall back on the Central Bank of Nigeria, CBN, giving you money. Look at the crisis even the National Assembly and President is facing now, they don’t know how to treat the Ways and Means of over N22trillion. So it’s a major issue securitizing it into a 40-year bond and so forth.
“The National Assembly is in a quandary because the National Assembly is to appropriate not to ratify, the money has been spent so how do you account for N22trillion spent without appropriation? It’s a major breach of the constitution and a major breach of the CBN Act, these are the kind of crises you create when expenditures begin to balloon when you are struggling with revenue.
“And to deal with revenue issues, we have to push quickly in the area of reforms in the area of oil and gas so that the amount of money we are spending on the importation of petroleum products, subsidy, all the leakages, at least we can deal with them. We must be able to clean up that space, the pressure of revenue including fiscal consolidation challenges, you will be able to deal with it.
Continuing he argued that we needed to “reform the foreign exchange environment and your previous guest alluded to that. Government is losing revenue; exchange rate today it is over N700 to a dollar so why go and put the budget assumption at N435 to the dollar. That is loss of revenue from day one so we need to bridge that. Apart from revenue implications, there are investment implications and corruption implications around the foreign exchange policy so once we are able to clear that the better. We need to have more investment so that with more economic investment, we can earn more revenue”.
On fuel subsidy, Muda said when it is eventually removed it might not constitute a heavy burden on consumers since majority of them are already buying above the regulated price.
“By that time we expect some of our refineries to have come on board both government owned and the one owned by Dangote. It will reduce the level of deficit. Secondly, we expect that whatever savings we get from that should also be deployed in a way to provide some succor to the average Nigerian and to also reduce all the corruption, all the leakages and on top of that it will also attract investment because we don’t have enough investment in the oil and gas downstream because of this problem of subsidy, that sector is in a complete mess.
“It is only Nigerian National Petroleum Corporation NNPC Ltd that is sitting on it, we need more private capital, that can also change a whole lot of things in the economy. If you bring in more investment, it will create more jobs, it will also increase revenue, increase even our export, do more locally in the area of fertilizer, petrochemical, local production of PMS, aviation fuel, we can do locally. But the policy environment has to be right and one major issue there is to deregulate that space”.
On his part, Chukwu described the exchange rate of N435 to a dollar as quite conservative in the “sense that if you look at the Investors and Exporters (I&E) window, the exchange rate has also gone beyond N435 to a dollar and if you look at the parallel market, I don’t think the incoming government will want to sustain a multiple exchange rates. So that for me is also conservative and will be difficult to achieve”.
According to him, the 3.7 percent growth in GDP for 2023 may also not be achieved given the gradual decline of GDP growth rates of last year.
He said generally speaking, the budget estimates and projections are quite optimistic.
