Nigeria’s growing security concerns complicate the country’s economic problems in several ways, and are primarily responsible for the government’s growing budget shortage, said Finance Minister, Zainab Ahmed.
The government expects about N10 trillion in revenue in 2022 but plans to spend over N16 trillion, leaving a deficit of over N6 trillion. The shortfall for 2021 stood at N5.2 trillion.
The remainder had to be covered mainly by credit – and partly by privatization proceeds – at some point the national debt had reached its highest level in more than two decades.
Worse still, real income is only about 30% of the expected figure in recent years, meaning that more than 70% of available income has been used to pay creditors.
Ms Ahmed said on Friday, 8th October 2021, that large government spending on security equipment and operations was fueling a budget deficit and forcing the government to borrow more.
“It is unlikely that our recovery from either of the two recessions will be as fast as if continued government spending was partially financed by debt,” she said at a public presentation of the budget in Abuja.
“To make matters even more complicated, the country is technically at war with security challenges that are widespread across the country. This requires large expenditures on equipment and safety measures, which have contributed to the budget deficit. The defence and security sector accounts for 22% of the 2022 budget.
The deficit is financed through loans from local and foreign sources, including multilateral and bilateral financial organizations.
According to him, loans from domestic and foreign sources of income are each around N2.51 trillion, loans from multilateral and bilateral groups are around N1.11 trillion and privatization income is around N90.7 billion.
President Muhammadu Buhari, who presented a budget estimate for 2022 at a joint meeting of the National Assembly, confirmed the earlier loan.
“That equates to 3.39 per cent of estimated GDP, more than three per cent of the threshold set out in the 2007 Fiscal Responsibility Act. Countries around the world need to exceed their tax thresholds for their economies to survive and thrive.
“We must cross this threshold in light of our shared desire to continue to address the existential security challenges of our country.”
Defence and security (military, police, secret service and paramilitary) received N 2.41 trillion of the total budget.
BUDGET PARAMETERS
The main drivers of budget projections for 2022, such as benchmarks for oil prices, oil production volumes, exchange rates, GDP growth and inflation, remain unchanged, as in the pre-agreed medium-term budget framework for 2022-24.
The framework has been revised due to the need to reflect the new tax provisions in the Oil Industry Act (PIA) 2021, as well as other significant expenditures in the 2022 budget. It is assumed that the tax impact of implementing PIA will materialize by mid-2022
Recurring expenditures (excluding debt), estimated at N66.83 trillion, accounting for 41.7% of total expenditures and 18.5% above budget for 2021.
The total investment of N5.35 trillion represents 32.7% of the total expenditure.
At N 3.61 trillion, debt payments were 22% of total expenditure and 35.6% of total revenue.
The age limit allowance with bonds for local contractors/suppliers of N 292.7 billion is 1.79% of the total cost.
FORECAST
Consumption is expected to increase in the mean term, increasing from a revised N136.57 trillion in 2021 to N149.35 trillion in 2022, or an increase of 9.36 per cent. This dynamic of growth is expected to continue and reach N179.64 trillion in 2024.
Nominal GDP is expected to increase from N168.60 trillion in 2021 to N184.38 trillion in 2022 and then to N221.78 trillion in 2024.
Real GDP growth of 4.2% is forecast for 2022. Given the structural issues affecting business costs, including the high cost of food distribution, inflation is likely to remain in the single digits over the medium term. However, the steady decline is expected to continue, with inflation falling to 13 per cent in 2022 and 10 per cent in 2024.
Although the total oil production capacity in Nigeria is 2.5 Mbps the current (as of this year) crude oil production is around 1.4 Mbps (slightly less than the OPEC+ production quota) and an additional 300,000 BPD of condensate for a total value of about 1.7mbpd.
Oil production is expected to average 1.88 million barrels per day (including condensate) by 2022.
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