N19.76tn budget proposal: N12tn deficit worries FG, debt could reach N54tn

The federal government is proposing a budget with estimates totaling tn 19.76, while the deficit will fluctuate between tn 11.30 and 12.41 in fiscal year 2023.

If the deficit stands at 12.41 tn in 2023, the federal government may need to borrow to finance it, which could push Nigeria's total debt to a record 54, 01 tn.

Nigeria's current debt is N41.6 billion, according to the first quarter of 2022 data from the Debt Management Office.

Debt will likely exceed the 3% limit prescribed in the Fiscal Responsibility Act, which was already exceeded by the current administration in 2020.

Finance, Budget and National Planning Minister Zainab Ahmed said in Abuja on Monday that the government may not be able to fund treasury-funded investment projects l next year, in particular due to lower revenues and payment of a subsidy on Premium Motor Spirit commonly known as gasoline.

Ahmed, in his presentation to the House of Representatives Finance Committee during the hearing on the draft 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper, expressed concern that the challenges of crude oil production and oil subsidy deductions by the Nigerian National Petroleum Company Limited (formerly Nigerian National Petroleum Corporation) posed a major threat to the country's revenue growth targets. /p>

The minister added that the country must do things differently to get results.

She said bold, decisive and urgent action must be taken to address the underperformance of revenue and spending efficiency at national and subnational levels.

The Minister said: "In this scenario, the budget deficit is expected to be 11.30 tn in 2023, compared to 7.35 tn in 2022. This represents 5.01% of the estimated GDP) , above the three per cent threshold stipulated in the Fiscal Responsibility Act 2007.”

Ahmed, who has analyzed the options available, said the government could opt to pay a gasoline subsidy from January to December, adding that, "Given the space severely constrained, the budget deficit is projected to be N12.41 tn in 2023, compared to 7.35 tn budgeted in 2022, representing 196% of total FGN revenue or 5.50% of estimated GDP.”

She said: "This is significantly above the 3% threshold stipulated in the Fiscal Responsibility Act 2007 and there will be no provision for MDA's capital projects funded by the Treasury in 2023."

According to the minister, in the first scenario, the government's projected revenue for 2023 is N6.34 billion, of which only N373.17 billion is expected from oil-related revenue, while that the balance of N5.97 billion will come from non-oil sources.

Regarding the second scenario, Ahmed said, "In addition to subsidy reform, this scenario assumes a comprehensive implementation of the cost-revenue limit of state-owned enterprises. With those- here, FGN revenue for 2023 is projected at N8.46 billion, of which N99 billion or 23% is expected to come from oil revenue sources.”

She noted that the business as usual scenario assumes that the gasoline subsidy, which is estimated at 6.7 tn for a full year, will remain in 2023 and be fully funded, while another scenario is the reform scenario which assumes that the petrol subsidy will remain until mid-2023 based on the 18-month extension announced in early 2021, in which case only 3.6 tn naira will be provided.

Speaking on the key assumptions of the proposed budget for 2023, Ahmed said the oil benchmark was estimated at $70 per barrel, with an oil production baseline of 1.69 million liters per day and an exchange rate of 435.02 naira per dollar, while inflation is expected to increase by 17.16%. The minister added that GDP is expected to grow by 3.75%, while upward pressure on prices is expected to be driven by the current and lagged effect of the global price spike due to the Russian-Ukrainian war, domestic insecurity, rising import costs, exchange rate depreciation and other supply-side constraints.

The minister also noted that nominal consumption growth has been adjusted in line with revised estimates based on changes in GDP components and historical performance, adding that nominal consumption over the medium term is projected at N121.93tn in 2023.

Ahmed also said investment, especially foreign direct investment, is expected to be reduced by interest rate hikes in advanced economies, currency management issues and other challenges national, including insecurity.

The Minister noted that the key parameters as well as other macroeconomic projections determining the medium-term revenue and expenditure framework...