Budget 2022: Experts worry about increase in loans, as oil revenues decline


PResident Muhammadu Buhari has proposed spending 15 percent of the 2022 budget of 16.39 trillion naira on defense and security, with the sectors again topping the cat with 2.41 trillion naira for the military, police, intelligence and paramilitaries.

For infrastructure, the federal government has budgeted 1,451 billion naira (8.9%) for works and housing, electricity, transport, water resources and aviation, while the education obtained 1,290 billion naira (7.9%).

Regarding social development and poverty reduction programs, the federal government budgeted 863 billion naira (5.3%) for social investment and poverty reduction programs while health obtained 820.2 billion naira (5%).

Overall, the president has proposed 6.83 billion naira in recurrent expenditure, 5.35 billion naira for capital and 3.61 billion naira for debt service with about 6 billion naira as expected deficit. .

The Minister of Finance, Budget and National Planning, Zainab Ahmed, took stock during a public presentation of the highlights of the 2022 finance bill yesterday.

She blamed the huge defense and security budget on the widening budget deficit for the 2022 budget.

She said: “With the pervasive security concerns in the country, sustained funding of the security services is required, which has necessitated massive spending on security equipment and operations and contributed to the budget deficit. “

She dismissed concerns about rising debt, however, saying the lack of adequate revenue generation to fund the budget was the main challenge.

“What we have is a revenue issue, and we’re working on it to be able to fully fund government operations, as well as servicing our debt obligations. Borrowing is essential so that we can continue to deploy the necessary investment spending and human development, ”she said.

She said the N16trn to be spent was small compared to the more than N100trn already spent on the Nigerian economy.

The minister said Nigeria needs 50 percent of its current gross domestic product (GDP) to be able to have infrastructure development and growth that will translate into significant economic growth.

Why Nigeria’s debt exceeded 3% of GDP

The minister said that under section 41.1 of the Fiscal Responsibility Law, the country can borrow to invest in capital spending and human development as long as the borrowing does not exceed 3 percent of GDP.

“This year we have passed the 3% by 0.39%, but this was allowed in the Fiscal Responsibility Act, a provision that says the president can exceed the 3% threshold in the event of a national emergency.

The minister also blamed the two recessions of the past five years for the increase in the country’s debt.

FIRS generates 4.2 billion naira so far in 2021

Speaking, Federal Inland Revenue Service (FIRS) President Muhammad Nami said the organization had generated 4.2 trn N as of September 30.

He noted that the current diversification of the economy by the current administration was effective as 950 billion naira (or 22%) was generated by the oil sector, while 3.3 billion naira was generated by the sector. non-petroleum.

Experts express divergent opinions

Economic experts and analysts have expressed divergent views as they attempt to analyze budget projections for 2022.

A finance and operations director of a Washington-based Snohomish community foundation, Kalu Aja, blamed the country’s huge borrowing.

He said: “I prefer to analyze quarterly performance. However, when a country says borrowing N6trn in 12 months (50% of the loan is in $) is “within limits”, I shudder because every day the federal government will pay N16bn. I did not add interest.

Aja also looked at the federal government’s actual figures from January to June 2021, which amounted to oil revenue – N 538 billion, non-oil revenue – N 778 billion, other income – N 995 billion and total revenue – 2.3 billion naira.

“Commercialization of NNPC may lead to lower income”

A professor of energy economics and former president of the Nigerian Association for Energy Economics, Prof. Omowumi Iledare, however, said the commercialization of the Nigerian National Petroleum Corporation (NNPC) would have an implication on oil revenue in next year’s budget funding.

He said: “You would expect the revenue to fund the federal government budget to also decline as the NNPC becomes profit oriented. What goes to the NNPC government will become dependent on dividends.

“Yet PIA has ceded 30% of PSC’s oil profit and gas profit in deep water to the border exploration fund.”

To get the most out of the budget on the basis of the reformed oil industry, Iledare said that the implementation of all the provisions of the Oil Industry Law (PIA) must be such that the efficiency, the efficiency and equity are sacrificed for the sake of political expediency to avoid the financing problems that loom in the short and medium term.

He added that the provisions of the PIA in the fiscal framework with budgetary financing implications were quite blatant.

“Yes, the provisions are more geared towards expanding production and perhaps sustaining oil revenues in the long term than in the short or medium term. The royalty regime in the PIA has become less regressive depending on the terrain, but in reality the effective royalty rate is significantly lower with a cap of 15% compared to the 20% fixed for all onshore assets, which means less income from joint venture assets in shallow water and onshore.

“The divestment of coastal and shallow water interests is a concern when it comes to oil revenues to finance the budget in the future,” he said.

Faruk Shuaibu, Sunday Michael Ogwu, Simon Echewofun Sunday & Chris Agabi

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