Economists Raise Concern over FG’s 2023 Spending Plan

*Fault use of debt to finance deficit budget

Festus Akanbi, Gboyega Akinsanmi, Dike Onwuamaeze in Lagos and James Emejo in Abuja

Following the presentation of a N20.51 trillion appropriation bill for 2023 to a joint session of the National Assembly in Abuja on Friday, some economists have raised concerns over the proposed spending plan given current revenue challenges in the country.

Reacting to the proposal, the Chief Executive Officer of Economic Associates, Dr. Ayo Teriba; Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf; Group Executive Director of Cordros Capital, Mr. Olufemi Ademola and analysts from Cowry Asset Management Limited called for a departure from the use of debt to finance the budget deficit.

They proposed ways out of the budget problems, including the use of equity to finance the deficit, saying Nigeria got to the current deficit level because of reliance on the use of debt to finance deficits in the past.

On his part, Teriba faulted the government’s plan to use debt to finance the deficit, which he blamed for the nation’s current woes.
He noted that because of the ambitious layout of the budget, the worry is how to get N10 trillion in revenue in 2023.
According to him, “The overall spending proposal is a lofty N20.51 trillion but the non-debt spending is a more sobering N14.21 trillion once you deduct the proposed N6.3 trillion interest payments from the overall spending plan. So, we do not have a N20.51 trillion spending plan on the table. We only have a N14.21 trillion spending plan.

“The proposed revenue of N9.73 trillion does not reflect our peak revenue performance of N6trillion in 2021. It is unlikely that we are going to get that N6 trillion in 2022, as we reported only 1.6 trillion in the first four months. How we are projecting N9.73 trillion in revenue in 2023 is therefore a mystery. Even if we are lucky enough to generate the N9.73 trillion, you must discount the N6.3 trillion projected interest payments out of it to leave us with a N3.43 trillion net revenue against the N14.21 trillion non-debt spending. This explains why the President is proposing a deficit of N10.78 trillion.”

Speaking on options available to the federal government, Teriba said “Our approach should not be to continue issuing only debt, especially with the increasingly unbearable burden of interest payments that exposes our fiscal vulnerability. 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 the down debt, make the fiscal situation more sustainable and rekindle much-needed confidence in our economic and fiscal resilience,” he said.

Also reacting, the Chief Executive Officer of the CPPE, Yusuf said the 2023 federal government budget has further amplified the troubling fiscal outlook for the economy, noting that expenditure continues to accelerate amid consistent weak revenue performance.  
He cautioned the government against excessive borrowing, which he said may trigger an acceleration of fiscal deficit as revenue declines.
Yusuf said several issues should be addressed to achieve our fiscal sustainability aspiration.

He said, for instance, government-owned enterprises managing huge economic assets should justify the value of assets at their disposal.
Yusuf, who was a former Director-general of the Lagos Chamber of Commerce and Industry (LCCI) said oil revenue performance should be much better given the prevailing global oil price. He said that lapses in the petroleum upstream ecosystem should be urgently addressed.
On his part, the Group Executive Director of Cordros Capital, Ademola said given the present revenue realities, there is a need for the government to slow down in the area of infrastructure spending.
He said Nigeria doesn’t have access to the needed fund locally, noting however that the increasing debt servicing is part of the current problems facing the proposed budget.

According to the Financial Advisory firm, Cowry Asset Management, Nigeria requires a huge outlay of financial resources to drive all-inclusive growth.
In a position paper on the 2023 budget proposal, the asset management firm said, “A look at Nigeria’s revenue generation power over the years has shown how important it is to cut the cost of governance as it plans to introduce the payroll system in the area of personnel cost as means to monitor ghost workers.”
Also, Cordros Capital, another financial management firm believed that given that the external financing conditions are unfavourable, it implies that much of the deficit financing would be channelled towards the domestic debt market amid an increased reliance on the CBN’s Ways and Means (W&M) advance.
Further reacting to the 2023 budget proposal, renowned economist/Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, described the oil price benchmark of $70 as conservative in line with budget principles.

Uwaleke,  however,  expressed worry that capital expenditure as a proportion of total spending had gone down below the government target of 30 per cent while debt service at over N6 trillion is more than the amount budgeted for capital expenditure.
The former Imo State commissioner of finance, also said the fiscal deficit of over N10 trillion could be trimmed especially by pruning down the over N1 trillion overhead costs.
“As the president rightly noted, the greatest threat to budget performance is the revenue side. This is why every effort must be made to improve revenue collection efficiency as well as monitor closely the MDAs and government independent revenues.”