Nigeria’s current economic situation is posing some serious concerns. With the high rate of inflation, dwindling revenue, and accruing debts, there are questions on how the Nigerian government intends to fund its 2023 national budget.
President Muhammadu Buhari last week proposed N20.15 trillion as the 2023 budget of the Federal Government to the joint session of the National Assembly, with an oil benchmark fixed at $70 per barrel.
The Nigerian government revenue projection is N9.73 trillion, which is almost half of the budget (i.e a whopping deficit of N10.78 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.
According to experts, the 2023 budget has further amplified the troubling fiscal outlook for the economy, as expenditure continues to accelerate amid consistent weak revenue performance.
As of the first half of 2021, Nigerian government revenue raised internally amounted to approximately 398 billion Nigerian naira (NGN), roughly 958 million U.S. dollars. In 2020, an Internally Generated Revenue (IGR) of more than 1.3 trillion NGN, some 3.1 billion U.S. dollars, was registered.
Meanwhile, government revenues decreased to 1014.87 NGN Billion in the fourth quarter of 2021 from 1114.21 NGN Billion in the third quarter of 2021
Ways and Means
The ways and means provision allows the government to borrow from the CBN if it needs short-term or emergency financing to fund delayed government expected cash receipts of fiscal deficits.
Cyril Ampka, an Abuja-based analyst, said the only option, in the face of lack of sincerity of the fiscal authority is for the CBN to once again rescue the government with the ways and means advances.
According to Cyril, the budget has again displayed the lack of fiscal responsibility that had characterised the Muhammadu Buhari’s administration since 2015.
“It is said that the only option I see is that the Federal Government will approach the CBN to bail it out with the ways and means advances which was N20 trillion as at the end of second quarter of 2022,” Ampka said.
Currently, the Central Bank of Nigeria (CBN) loan to the Federal Government has increased from N20.61 trillion in July 2022 to N22.07 trillion in August 2022.
The CBN reported that in August 2022, the Muhammadu Buhari administration borrowed N1.46 trillion through Ways and Means Advances.
The CBN uses a borrowing mechanism called Ways and Means Advances to cover the budget gaps in the government.
According to the CBN, between January and August, the government borrowed N4.61 trillion in total from the apex bank.
“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 is currently at N42 trillion, the Chief Executive Officer(CEO), Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf said.
“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 the end of 2023. This should be a cause for concern”.
Impact of Ways and Means to CBN
According to the CBN, the Federal Government’s borrowing from it through the Ways and Means Advances could adversely affect the bank’s monetary policy to the detriment of domestic prices and exchange rates.
“The direct consequence of central banks’ financing of deficits are distortions or surges in monetary base leading to an adverse effect on domestic prices and exchange rates i.e macroeconomic instability because of excess liquidity that has been injected into the economy,” it said.
According to Section 38 of the CBN Act, 2007, the apex bank may grant temporary advances to the Federal Government with regard to temporary deficiency of budget revenue at such rate of interest as the bank may determine.
The Act read in part, “The total amount of such advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the Federal Government.
“All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year they are granted.
“If such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”