2023-2025 MTEF: FG to spend N19.76trn in 2023 as fuel subsidy ends June next year

The federal government has proposed an aggregate expenditure of N19.76 trillion for the 2023 financial year, with a projected deficit of N11.30 trillion.

The government has also projected the total revenue of N8.46 trillion, out of which N1.9 trillion is expected to come from oil-related sources while the balance will be from the non-oil sector.

The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed this while presenting the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) to the House of Representatives Committee on Finance in Abuja on Monday.

Ahmed said crude oil price was pegged at $70 per barrel at the exchange rate of N435.57 per dollar, oil production is put at 1.69 million barrel per day, real Gross Domestic Product (GDP) growth is projected at 3.7% while inflation is put at 17.16% in 2023.

She said it is assumed that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for it in next financial year.

The minister also said there will be stiffer enforcement of the performance management framework for Government Owed Enterprises (GOES) that will significantly increase operating surplus/dividend remittances in 2023.

Ahmed stated that: “the budget deficit is projected to be N11.30 trillion in 2023, up from N7.35 trillion in 2022. This represents 5.01% of the estimated GDP above the 3% threshold stipulated in the Fiscal Responsibility Act (FRA), 2007. This deficit level assumes that petrol subsidy reform will be implemented from mid-2023 in line with the timeline for suspension thereof.

“The draft 2023-2025 MTEF/FSP has been prepared against the backdrop of continuing global challenges occasioned by lingering Covid-19 pandemic effects, as well as higher food and fuel prices due to the war in Ukraine”.

Overall, fiscal risks are somewhat elevated, following weaker-than-expected domestic economic performance and structural issues in the domestic economy.

“Revenue generation remains the major fiscal constraint of the Federation. The systemic resource mobilisation problem has been compounded by recent economic recessions. Efforts will however focus on improving tax administration and collection efficiency.

“Crude oil production challenges and PMS subsidy deductions by NNPC constitute a significant threat to the achievement of our revenue growth targets; as seen in the 2022 Performance up to April.

“Bold, decisive and urgent action is urgently required to address issues of revenue underperformance and expenditure efficiency at national & sub-national levels.”

The minister while responding to questions by members of the James Faleke-led committtee said, from what has happened in 2022, it clearly shows the country is not getting value from spendings on oil as production continues to decline, hence the need to do something differently.

Ahmed said: “my understanding is that security agencies and the bational oil company (NNPC) as well as the regulators have been working very hard to find solutions and what they tell us is that they are beginning to see improvement.

“From the performance in April at 1.3 million barrels per day and by July it was 1.4 million. We do hope that the increase will be very significant because it’s costing us not just N3.2 billion in terms of security cost. But it’s costing us the revenue we have earned. At 39 percent, the oil and gas revenue as at April is at very low performance. We need to move oil and gas revenue the threshold.”

On the issue of Morocco Nigeria gas pipeline, she said: “the Federal Executive Council a few weeks ago approved funding for the feasibility study, which means that it’s still at the feasibility study phase. The National oil company can provide the details.”

Ahmed said the Petroleum Industry Act has given the Nigerian National Petroleum Corporation (NNPC) limited some independence from the federation and has to perform in line with the laws of the Company and Allied Matters Act.

“A lot of the expenditure the federation use to carry, will now be carried by NNPC limited. NNPC will be paying taxes and dividends and we believe in the medium term the federation will end up earning more revenue. It also means that the NNPC will need to go and borrow money on its own. That will improve efficiency on the company. They have to pay dividends and royalties to the federation which they were not doing before.”

On the issue of upward pressure on prices of oil the minister said: “As inflation is going up and also as it appears the war between Russia and Ukraine is not abating, what we are projecting is that there will be continuous pressure on prices.

“What we have to do is to look at how we can push in those pressure to the inflationary trend. Why we projected 70 dollars per barrel when the actual crude oil price is now 103, groups like EIA that are specialists in projecting oil prices are projecting a decline in oil prices come 2023.

“On production, we are projecting 1.69 million barrels per day. Based on the projection of NNPC , they are projecting that all the measures taken now is going to result in increased production and we hope it works out. If it doesn’t the deficit situation we found ourselves in will even be worse.”

The minister further said Nigeria has been able to consistently without fail, service her debt and the country do not have any projections even in the near future, to fail in that obligation.

According to Ahmed, although the amount currently used in servicing debt in the country has overshot, what was appropriated for in the budget, measures have been put in place to manage the situation.

She said: “Is over what we budgeted for in the budget; in the budget, what we had planned was 60 per cent of revenue to debt but we had some months when the ratio goes up to 90 per cent.

“But because of the in budget we also provide for debt service and consistently as the revenue is accruing; we have a sinking where every month we take a certain proportion of the revenue put in the sinking fund.

“We actually follow the Medium Term Debt Management Strategy very strictly; the debts are not taken haphazardly and they are planned, they are appropriated and then we borrow against appropriation”.

Earlier, the committee’s chairman, James Faleke, said Nigeria was in desperate need of revenue to meet up with many financial obligations.

He reiterated that so many things suffer when there is no revenue, even as he urged all Ministries, Departments and agencies to provide adequate information to the parliamment so as make informed decisions.