As the National Assembly begins the defence of the 2023 budget next week, immediate past Director-General of the Lagos Chambers of Commerce and Industry (LCCI) and Chief Executive Officer of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, speaks with IMOLEAYO OYEDEYI on the key approaches the lawmakers should take in the budgetary exercise, among other sundry issues relating to next year’s budgetary allocations and the severe debt crisis of the country.
Next week, the National Assembly is expected to start engaging ministries, departments and agencies of the federal government for the defence of their proposals in the 2023 budget of N20.51trillion, which President Muhammadu Buhari presented to the two chambers last Friday. In view of the current realities of the country and peculiarities of next year, what kind of approach will you want the lawmakers to take during the exercise?
I think their approach should be on how to ensure fiscal consolidation. What that means is strategies for fiscal sustainability. And what they need to look into is how the country can improve on revenue performance and cut down on expenditure. They have to look at how we can reduce the gap between the country’s revenue and expenditure, so that the deficit in the budget can be much lower than what it is now.
Secondly, they should work a lot more with the revenue-generating agencies of the government. This is because it has been a recurring issue over time and I believe that the parastatal [agencies] that generate revenue for the country can do a lot more than what they are doing now.
Thirdly, the lawmakers are to demand accountability in the way the agencies spend government funds. Up till now, some of the agencies have not accounted for how they spent last budget’s allocation. And many of them don’t respond to audit queries from the Auditor-General of the Federation. Some of them have not even prepared accounts for three solid years. And yet, they have been getting allocations annually. So, the issue of accountability is very important and the lawmakers should take it seriously as the agencies come before them to defend the budget. This is because the NASS is expected to provide oversight for the executive arm of the government.
More so, the lawmakers should also look at some of the wrong assumptions in the budget. For instance, look at the exchange rate assumption in the proposed budget that says that the naira exchange rate is N435 to a dollar when we all know that the open market exchange rate is about N750. So, if you put the exchange rate in the budget at N430 or N435, it is like short-changing the government. Why not put it at N500? The implication is that whatever comes to the government as external revenue next year will be exchanged at the rate of N435. So, the NASS needs to review this. And then, the executive pegged oil output to 1.69 in the budget, despite the whole problem of oil theft. These are some of the key issues I feel the lawmakers should look at as they begin the defence of the budget.
The 2023 budget is the last of the Buhari’s administration. The first budget the administration presented in 2016 was N6.061trillion. This year, the administration has presented a budget of N20.51trillion. But having taken the country’s debt profile from N12.12trillion it met in 2015 to N42.84trillion as of June 30, 2022, the administration is now planning to borrow another N8.4trillion to fund this year’s budget. What do you think has boxed the government into this vicious corner of massive indebtedness and huge budgetary allocations?
The thing is that, ordinarily, if you are running a family, once your income is dropping, the wise thing to do is to reduce your expenditure. But in this case, Nigeria has not been performing well as far as income generation is concerned. Yet, instead of expenditure to reduce, it has continued to go up, year in, year out. And the government has been acting as if it is business as usual, not taking into account the implication it is having on the economy. And because there is this cheap window of borrowing, which both the state and federal government quickly jump into, there has been this disinclination when it comes to cutting down the cost of governance. And this is what has warranted this wide gap between revenue and expenditure, which is leading to the mountain debt.
Secondly, some of those borrowings are also expensive. Commercial debt is very expensive. I am talking of external debt now. It is very costly to finance. Firstly, it is in dollars and secondly, the interest rate is very high, because those who are buying the bonds, would have factored in the risks. And that is why some people have said that it is better to focus more on the multilateral or bilateral debts, rather than the commercial debts, which is about 40 per cent of the total foreign debts of the country. And it has partly been as I have said that the government has not been doing much to reduce expenditure.
But what other factor do you think has confined the government to this cycle, making it look as if it can’t do without taking loans and increasing yearly budgetary allocations?
Look at all the money they have been borrowing, it would have been better if they had been taking them to strengthen the capacity of the economy to pay back. This would have been a different issue entirely. This is because when you borrow money in a company, you borrow to invest, so that your business will grow and yield. And from the proceeds of the business, you can now be paying back the debt. But if you go and borrow money and don’t increase your capacity to pay back the debt, then you are digging yourself into a bigger hole of debt. If you look at the debts the government has incurred compared to its investment in infrastructure, can you match the two? Sometimes, the total investment in infrastructure in a year may not be up to N2trillion. Sometimes, it will be N1.5trillion. I mean the actual releases for infrastructure. Yet, we can run a deficit of almost N10trillion. Now, they are talking of borrowing N8.4trillion. How much are they budgeting for capital expenditure? N5.1trillion. How much of it is going to infrastructure? Maybe a half of this. Yet, we say we are borrowing to fund critical infrastructure. A lot of the borrowing is going into areas that don’t support the capacity of the economy to pay back the debts. That is why the debt crisis has seemed to be insurmountable.
But instead of taking the new loans, what other efficient mechanisms do you think the government can take to finance the budget?
The truth is they can’t just refuse taking the loan now, because this is supposed to be done gradually. If over the years, the government has not talked about cutting down on expenditure, can it now suddenly cut it down and refuse to take the new loan? It is not possible. The government should have started doing this thing gradually, so that the shock on the system will not be much when it eventually decides to stop taking loans.
Then, there is this subsidy problem, which is another headache and burden on the government finances. It is part of what is creating all the debt problems. Imagine in a year, you are not spending about N6trillion on subsidy and the refineries are all working, such that we don’t have to import any petroleum products, the issues at hand will certainly not be as hot as they are now. Amidst all these crises, what explanation does the current administration have, that in seven years, it cannot get the refineries working? What excuse does the government have? I don’t think it has any. Look at how importation of petroleum is gulping our foreign exchange, making it difficult for us to balance our budget every year. And more importantly, it has become a very big platform for corruption. So, a lot of the problem is coming from these angles.
But should the government go ahead to take the new loan, which will further compound the country’s debt crisis, what implication do you think this will have on the Nigerian economy, especially considering the fact that a new government will take over power next year and will inherit about N39.12trillion debt from the current administration?
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 N20.51trillion 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 underperformance over the last couple of years. We are also likely to see an acceleration of CBN financing of the fiscal deficit, given the revenue performance trajectory. The public debt stock is growing and currently at N42 trillion.
With additional new borrowing of N8.8trillion, 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 N20trillion and the N5trillion AMCON debt, we will have a total debt of N75trillion by end of 2023. So this is a very big burden in terms of legacy that should be left behind.
The implication is that things will be extremely tight for the incoming administration. And it will take a whole lot of time before it will get out of the debt debacle. It will require that some difficult decisions will have to be taken, especially around the subsidy problem, which will be very painful to the citizens. But we will not have any choice. It also means that the next government will have to cut down on its expenditure, maybe by rationalising some of the extant agencies.
More importantly, the macro-economic implication is going to be a big tragedy as it implies that there will be more debts, because this is a vicious cycle. There will also be more borrowing. And the debt service will continue to increase. And that is how the misery will go on like that, except if we find a way to break the cycle. So these are the implications.
A number of issues really need to be addressed to achieve our fiscal sustainability aspiration. 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 sub-optimal for many years. These include government enterprises in maritime, and oil and gas, for example. It is instructive that some reforms are ongoing at the NNPC.
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 the 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. We agree with the president that funding of tertiary education cannot be adequately and sustainably supported exclusively from the 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 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 regimes 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.
Finally, what is your take on the state of inflation and misery rate of Nigerians under Buhari’s government?
The mounting inflationary pressures in the Nigerian economy remain a major cause for concern. Headline inflation accelerated to 20.77 per cent in September as against 20.52 per cent in August. Food inflation maintained its uptrend rising to 23.34 per cent in September. Key inflation drivers have not abated, if anything, they have become even more intense. These factors include the depreciating exchange rate, rising transportation costs, logistics challenges, forex market illiquidity, hike in diesel cost, climate change, insecurity in many farming communities and structural bottlenecks to production. These are basically supply side issues.
The accelerated growth in fiscal deficit financing by the CBN is boosting liquidity in the economy and has a profound effect of fueling inflation. It is currently at the threshold of N20 trillion. The CBN financing of fiscal deficit has been elevated to disturbing levels with huge implications for money supply growth and consequent effect on inflation. It is an inflation tax.
Elevated inflationary pressures weaken purchasing power of citizens as real incomes are eroded, increases poverty incidence, aggravates pressure on production costs, negatively impacts profitability, erodes shareholders value and undermines investors’ confidence. In most cases, increases in production costs cannot be transferred to consumers. The implication is that manufacturers are also taking a hit. This is more pronounced where the demand for the product is elastic.
Tackling inflation requires urgent government intervention to address the challenges bedeviling the supply side of the economy and the moderation of fiscal deficit monetisation. To give producers some succour, the government could tweak the tariff policies by granting concessionary import duty on intermediate products for industrialists. It is imperative at this point to review the import policy on some food items to provide some succour to citizens in the face of excruciating poverty. The CBN also needs to adopt a flexible exchange rate policy to address the problem of acute forex scarcity in the economy.
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