Budget deficit rises 370%, reaches N47tn under Buhari

The total budget deficit under the president, Major General Muhammadu Buhari (retired), will reach N47.43 trillion, according to an analysis of Federal Government data by the Federation Budget Office.

According to Investopedia, a budget deficit occurs when expenses exceed income.

The budget data analyzed by the punch cover actual and projected budget deficits for fiscal years 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2023.

According to the data, the financing of the deficit increased by 370.54%, from 2.41 trillion naira in 2016 to 11.34 trillion naira in 2023.

In the third and fourth quarter of 2015, total deficit financing amounted to N841.48 billion, increased to N2.41 trillion in 2016, N3.81 trillion in 2017, N3.65 trillion in 2018, N4.18 trillion in 2019, N6.59 trillion in 2020, N6.44tn in 2021.

While the total deficit for 2022 has not been released, the budget office expects the deficit to reach N8.17 trillion (of which N6.37 trillion had been spent as of November 30, 2022). The office also anticipates high deficit financing of N8.17tn for fiscal year 2023.

Between the third and fourth quarters of 2015, 2016, 2017, 2018, 2019, 2020, the first three quarters of 2021, and the first four months of 2022, the federal government spent N23.66 trillion on personnel costs, pensions, general expenses , presidential amnesty program, other votes from the entire service and special interventions.

It also spent 14.13 trillion naira on servicing internal and external debt, as well as 10.47 trillion naira on capital expenditures.

Explaining the government’s budget deficit, an economics expert, Professor Akpan Ekpo, said: “This shows that spending has dwarfed revenue, because they have to borrow, which is why there is a deficit.

“They can’t raise enough internal resources to finance spending. That gap is a deficit. Speaking of GDP, by the rules, it shouldn’t be more than a certain percentage of GDP, but it has exceeded that.”

According to the former Coordinating Minister for the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala, there is a need to keep the budget deficit below three percent of GDP due to the Fiscal Responsibility Act of 2007, and in accordance with standard international law.

The country’s budget deficit to GDP ratio increased from 1.69% in 2015 to 2.37% in 2016. It increased to 2.85% in 2018, 2.92% of GDP in 2019. The Federal Government expects that the ratio between the deficit and GDP will be 5.03 percent of the 2023 budget.

The Minister of Finance, Budget and National Planning, Ms. Zainab Ahmed, had revealed that the government was struggling to raise revenue for its spending.

In a document titled ‘Public Consultation on the 2023-2025 MTFF/FSP Draft’, he said: “Revenue generation remains the federation’s main fiscal constraint. The problem of systemic resource mobilization has been exacerbated by recent economic downturns.

While defending the 2022 budget, he stated: “If we only depend on the revenue we get, even though our revenue has increased, government operating spending, including salaries and other overhead, is barely covered or swallowed by revenue. .

“So we need to borrow to be able to build these projects that will ensure that we can develop on a sustainable basis. Nigeria’s indebtedness has been a matter of great concern and has sparked many discussions. But if you look at the total size of the loan, it’s still within healthy and sustainable limits.”

the punch recently reported that the federal government borrowed N6.31 billion from the CBN through Ways and Means Advances in 10 months of 2022. This brought the total CBN borrowing from N17.46 billion in December 2021 to N23.77 billion in October 2022.

The World Bank had expressed concern about the financing of the budget deficit through the ways and means of the CBN.

In its December 2022 update, the global bank said: “In addition, fiscal deficit financing through ways and means continues to fuel inflation by increasing liquidity in the money market.

“The CBN’s inflation target of six to nine percent, which has not been achieved since 2016, is unlikely to be reached anytime soon.”

With deficit financing estimated at 5.2 percent of GDP for 2022, the bank revealed that the Federal Government continues to fail to comply with the legally stipulated level established in the Fiscal Responsibility Law (2007).

He further said that Nigeria’s GDP growth rate would continue to be outpaced by other emerging economies, with inflation rising and the fiscal deficit widening.

the punch The report indicated that the government could sell or concession the Tafawa Balewa Plaza in Lagos, as well as all the National Integrated Energy Projects in Olorunsogo, Calabar II, Benin (located in Ihorbor), the Omotosho II and Geregu II plants, and some others. government assets. to finance their budgets.

Redemptions of $15.62 billion in Eurobonds

Meanwhile, Buhari may pass on repayments of $16.62 billion worth of Eurobond loans to the next government, according to government data.

These reimbursements will be made almost every year until approximately 2038, according to the public presentation of the approved budget for 2023 by the Minister of Finance, Budget and National Planning.

The document showed that a repayment of $500 million is expected in 2023 and $1.12 billion in 2025.

The other payments include $1.5 billion in 2027 and $1.25 billion each year from 2028 to 2030.

There is also a rebate of $1 billion for 2031 and $1.5 billion each between 2032 and 2033.

He also noted that $4.75 billion would be paid starting in 2038.

In 2021, the punch reported that business loans raised by Nigeria through Eurobonds increased from $1.5 billion as of December 31, 2015 to $10.87 billion as of December 31, 2020, indicating an increase of $9.37 billion or 625 percent over five years .

The stock of debt remained at $1.5 billion between 2015 and 2016, but increased to $6 billion in 2017, indicating an increase of $4.5 billion or 300% in one year.

It increased further to $10.87 billion in 2018, which means an increase of $4.87 billion or 81 percent. It remained at this figure until the end of 2020.

However, checks for the punch it showed $15.62 billion as of September 2022, according to data from the Office of Debt Management.

the punch It noted that Eurobond debt increased by 941.33%, from $1.5 billion in June 2015 to the current figure published by the DMO.

Additionally, the refund amount will increase by 850 percent from $500 million for 2023 to $4.75 billion for 2038 and beyond.

the punch in October last year, it said that the amount spent by Nigeria servicing Eurobonds and Diaspora Bonds increased by 85.67 percent between the first and second quarters of 2022.

An analysis of data on actual external debt service payments from the DMO showed that Nigeria spent a total of $246.16 million servicing its foreign bonds in the first quarter of 2022.

For the second quarter of the same year, the total debt service cost of these loans increased to $457.01 million.

Therefore, the debt service increased by 86 percent between the two periods.

A Eurobond is “a debt instrument that is denominated in a currency other than the local currency of the country or market in which it is issued,” according to Investopedia.

A Eurobond is a bond issued abroad by governments denominated in a currency other than that of the issuer’s country. Eurobonds are usually long-term debt instruments and are usually denominated in US dollars.

Bond yields have risen of late, driven by interest rate hikes by the US Federal Reserve. The US Federal Reserve began raising rates in response to the record rate of inflation experienced in the world’s largest economy.

In March last year, Nigeria bought $1.25 billion in Eurobonds from the international capital market, making the country the first African country to access the market in 2022.

This happened a few days after Finance Minister Ahmed told him Reuters that there was no plan to enter the Eurobond market in 2022.

The DMO said proceeds from the Eurobonds would be used to finance budget-critical capital projects to close the infrastructure gap and bolster Nigeria’s economic recovery.

According to the finance minister, the profits from the 4,000 million dollars acquired in the Eurobond market the previous year would be used to finance the fuel subsidy.

However, the finance minister, on July 4, 2022, said that the government had abandoned plans to raise about $950 million by selling bonds abroad, due to unfavorable market conditions during the approved period for the collection. Of funds.

A member of the CBN Monetary Policy Committee, Robert Asogwa, while expressing concern about the increase in debt, said: “particularly worrying about the structure of the debt is the increasing accumulation of Eurobonds in the external debt component while minimizing concessionary loans. The government’s inexplicable preference for high interest cost Eurobonds, with the associated exchange rate risk, is likely to hurt Nigeria sooner than expected.

Another MPC member, Professor Festus Adenikinju, MPC member, said it was important to curb the government’s appetite for debt.

He said: “I am concerned that Nigeria will not be able to take full advantage of the current advantages in the world oil market. Not only were we unable to increase our production levels to meet the OPEC quota, there is also no buildup of foreign exchange reserves taking place, and the government deficit and public debts are falling at a time when we should be writing our profiles. debt and even building to prepare a buffer for the inevitable rainy days ahead.”

W’Bank speaks

Meanwhile, the World Bank has said that high borrowing costs, lower energy prices, slow growth in oil production and subdued oil sector activity weaken Nigeria’s fiscal position.

This was according to the latest World Bank Global Economic Outlook report released on Tuesday.

The bank pointed out that a series of factors, such as low oil production, insecurity, gasoline subsidies, and a shortage of foreign currency, among others, hinder the country’s growth.

The report said: “Political uncertainty, sustained high inflation, and the rising incidence of violence are anticipated to moderate growth. Agriculture growth is forecast to weaken due to damage from last year’s floods.

“The fiscal position is expected to remain weak due to high borrowing costs, lower energy prices, slow oil production growth, and subdued activity in non-oil sectors.”

The bank also said debt sustainability and investor confidence further deteriorated in many other countries, leading to higher borrowing costs and downgrades, such as Ghana and Nigeria. .

He added that increased insecurity has worsened fragility and is expected to reduce access to food for many more people across the region, further affecting economic recovery.