Joseph Inokotong, Author at Tribune Online

ECONOMISTS and captains of industry have thrown their weight behind the Federal Government’s proposal to remove fuel subsidy by 2023 but expressed concerns about the growing budget deficit, which is projected to hit N10.78 trillion in the 2023 budget estimate. President Muhammadu Buhari had, on Friday, presented the 2023 appropriation bill of N20.5trn to the National Assembly. The budget proposal, however, came with a deficit of N10.87trn, which would be funded with new borrowings totalling N8.80 trillion, N1.77 trillion draw-downs on bilateral/multilateral loans secured for specific development projects/programmes as well as N206.18 billion from privatisation proceeds. The experts cautioned that subsidy removal should be done gradually in order to minimise its adverse impact on the populace and, by extension, the economy. In an interview with the Nigerian Tribune, Dr Muda Yusuf, Founder/Chief Executive Officer, Center for the Promotion of Private Enterprise (CPPE), and the immediate past Director General of the Lagos Chamber of Commerce and Industry (LCCI), agreed with President Muhammadu Buhari’s proposal to remove fuel subsidy in 2023. He, however, expressed worries about the timing and suggested a phased withdrawal in order to reduce the anticipated negative impacts. Dr Yusuf said, “I agree with the President that petrol subsidy is not sustainable. It is a major factor in the current fiscal crisis that we are facing as a country. It is also a major platform for corruption. But the removal has been scheduled for when the present administration would have left office, perhaps deliberately. “It is a matter that the succeeding administration will have to grapple with. The strategy and timing should be appropriate, especially in light of the potential shocks on the citizens. Perhaps, a programmed removal would be ideal.” Proffering solutions on how government can cut down the growing budget deficit, which is projected to be N10.78 trillion in the 2023 budget proposal, he said some of the measures include “Reduction in cost of governance; phased removal of fuel subsidy; focus on multilateral debts as against the more costly commercial debts, such as euro bonds; adopt PPP models for infrastructure financing where possible; eliminate fiscal leakages and corruption; ensure more effective tax administration to boost revenue; and create enabling environment for investment growth”, noting that “this will impact positively on tax revenues.” ALSO READ FROM NIGERIAN TRIBUNE Fresh Crisis In APC, As NWC Member Accuses Ngige Of Working Against Tinubu, Party How We Convinced Boko Haram To Release Remaining 23 Hostages Of Kaduna Train Attack —Prof Usman Kogi Versus Dangote Battle Gets Messier 2023 Budget Proposal: Presidency To Spend N251m On Tyres For Bullet-Proof Vehicles In its reaction to the N10.78 trillion deficit in the 2023 appropriation bill, the Lagos Chamber of Commerce and Industry (LCCI) advised the federal government to consider more ‘efficient alternatives’ to borrowings, rather than issuing N10.57trillion new loans to finance a deficit of N10.78 trillion. The chamber, in a statement issued on Sunday, and signed by its Director General, Dr. Chinyere Almona, argued that while a budget deficit of N10.78trillion was not out of place, it disagreed with issuing N10.57 trillion new loans, to finance the deficit. The business advocacy body, therefore, called on the federal government to embrace equity financing, as an exclusive way of funding budget deficits; since it would save the country from paying huge interest payments. “We are of the view that while nothing is wrong with the N10.78 trillion deficit, everything is wrong with the plan to issue N10.57 trillion (N8.8 trillion in new commercial loans and N1.77 trillion drawdown on bilateral and multilateral loans) new loans to finance the deficit, at a time that we are already placed on the watch-lists of some of our foreign bondholders. “Massive equity financing is the choice we should all urge the Federal Government to consider now. Nigeria should henceforth use equity financing as an exclusive way of funding budget deficits. “If we embrace equity financing, we do not have to make huge interest payments, and we can use some of the proceeds of our equity issuance to pay some of our down debt, to make the fiscal situation more sustainable and rekindle much-needed confidence in our economic and fiscal resilience. “It is not too late to use equity to fund the 2023 deficit proposal. The current administration should be encouraged to take advantage of the equity choice to bequeath a legacy that the incoming administration can build upon as we find our way back to the path of fiscal sustainability as a nation,” the chamber stated. For Mansur Ahmed, President, Manufacturers Association of Nigeria, and Group Executive Director at Dangote Group, the removal of fuel subsidy is long overdue, and he hopes it would be implemented as proposed. He said, “The Premium Motor Spirit (PMS), popularly called petrol, ought to have been deregulated a long time ago. People are buying fuel at a higher rate in some places, more than the official price fixed by the Federal Government. “Imagine the pains this subsidy has inflicted on the economy with about N1.59 trillion spent on fuel subsidy from January to June 2022. This amount would have made a huge difference if it were channeled to the health, education, etc. sectors. Clearly, the issue of fuel subsidy removal is something that should have been done long time ago. Diesel, which has been deregulated, is an area that requires subsidy due to its importance to the entire economy, unlike petrol, which benefits a small segment of the population more. If the fuel subsidy is implemented as proposed, it is most welcome. We look forward to the implementation of fuel subsidy removal and release of money for the provision of infrastructure”. On the growing budget deficit, Ahmed said “The issue of deficit is as a result of the nature of our economy. The petroleum sector is a major source of revenue to the country. If the government can improve on production, plug leakages and remove fuel subsidy, that amount would have been utilised in providing the needs of the populace. By so doing, the amount of deficit would be reduced drastically. A lot of areas need to be improved on. We should improve on oil production; do something to bring down the debt portfolio.” Mr. Paul Alaje, Senior Economist and Partner at SPM Professionals, admitted that Nigeria cannot continue to accommodate fuel subsidy in the budget, but pointed out that what the people pay for is exchange rate differentials and not real subsidy. He said “Nigeria cannot continue to accommodate fuel subsidy in our budget. We need to do something about it. Is there subsidy and if yes, what are we really subsidising; is it really the PMS pricing that we are subsidising? “In my opinion as an economist, subsidy, as we have it in quantity from 2016 to 2017, is no longer there. What we are paying for is exchange rate differentials, poor policy regarding pricing. If the exchange rate were to be the same amount today as it was in 2017, the subsidy that government claims to be paying, would it still be there? The answer is no. It is the quality of money. The strength of the Naira continues to get weakened. When the government borrows money and finds it difficult to pay and have to print money and we have to devalue our Naira and subsidy increases, that is the real issue there.” The Founder/Chief Executive Officer, Center for the Promotion of Private Enterprise (CPPE), pointed out that “The 2023 Federal Government budget has further amplified the troubling fiscal outlook for the economy. Expenditure continues to accelerate amid consistent weak revenue performance. “We have a budget of N20.51 trillion and revenue projection of N9.73 trillion. This is a deficit of 10.78 trillion. In all probability, the deficit will be much bigger by year end because of the track record of revenue under performance over the last couple of years. “We are also likely to see an acceleration of Central Bank of Nigeria (CBN) financing of fiscal deficit given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion. “With additional new borrowing of N8.8 trillion, the debt profile will be inching close to N50 trillion by May next year. If we take into account the borrowing from the CBN (ways and means), which is currently about N20 trillion, we will have a total debt of N70 trillion by end of 2023. This should be a cause for concern.” On what should be done, he observed that a number of issues need to be addressed to achieve our fiscal sustainability aspiration. According to him, “Government owned enterprises managing huge economic assets need to justify the value of assets at their disposal. Returns on investment on those assets have been consistently suboptimal for many years. These include government enterprises in maritime, and oil & gas, for example. It is instructive that some reforms are ongoing at the Nigeria National Petroleum Corporation Limited (NNPCL). “Oil revenue performance should be much better given the prevailing global oil price. Lapses in the petroleum upstream ecosystem need to be urgently addressed. This includes the impunity of crude oil theft and vandalism of oil facilities. “The foreign exchange policy regime is adversely impacting on business environment and needs to be urgently addressed. Weak private sector performance would naturally affect non -oil tax revenues. “There is a need for budget reforms. The budgetary appropriations must reflect urgent national economic priorities. There are also concerns about value for money and other forms of fiscal leakages. The Auditor General of the federation had severally raised these concerns”. Dr. Yusuf added that “We agree with the President that funding of tertiary education cannot be adequately and sustainably supported exclusively from government budget. New funding models need to be urgently explored for adequacy and sustainable funding. Current budgetary provisions need to be augmented from new innovative funding windows. “The same is true for road infrastructure financing. The road fund bill needs to be revisited to ensure sustainable funding of road infrastructure across the country. Budget funding for roads cannot guarantee quality road infrastructure for a country over 200 million people. “We note the reference by Mr. President to Public Private Partnership (PPP) options for infrastructure financing. However, the macroeconomic and regulatory environment needs to improve to inspire confidence of investors in infrastructure within the PPP framework. Current macroeconomic and foreign exchange policy regime are major disincentives to investors in infrastructure, especially the foreign investors. We need the inflow of such foreign capital to complement government funding in infrastructure. “We note that this budget is a budget of Transition. However, the incoming administration would have to grapple with profound fiscal headwinds given the ominous fiscal outlook for 2023. As the campaigns progress, it is important for politicians to manage expectations. Tough policy choices will have to be made to reset the economy.”