On January 3, 2023, the presidency announced that the 2023 budget has been signed into law, along with the Supplementary Appropriation Act. Ordinarily, news of this should prompt excitement. And it has indeed — but for all the wrong reasons.
So what’s in this budget that has Nigerians in panic mode?
A very high budget deficit
Unless you have a passion for all things finance, budgets are often very boring documents to read and when you’re compiling a budget meant to serve 200 million people, it can turn into a snoozefest.
This one’s different though. The first thing that stands out is that it has a very high budget deficit.
The budget which is themed “Budget of Fiscal Sustainability and Transition” is in fact, a joke. A budget with a deficit of ₦12 trillion cannot, by any understanding of the word, be defined as sustainable.
In its initial executive proposal, total expenditure was set at ₦20.51 trillion. The ratified one which was signed into law by Muhammadu Buhari has an increase of ₦1.32 trillion. This brings total expenditure to ₦21.83 trillion while revenue remains at ₦9.73 trillion.
The government has defended this increase, saying it is in response to the havoc caused by the floods that affected infrastructure and agriculture sectors. Others are sceptical, saying that the budget is being padded.
Huge debt servicing
A sizable chunk of Nigeria’s revenue in recent years has gone towards the servicing of debt. According to Bloomberg, Nigeria spent 80 per cent of its revenue to pay debt in the first 11 months of 2022. The trend looks set to continue.
More than 90 per cent of the deficit will be financed by local borrowing. Borrowing means more debt, more debt means more debt servicing which is the interest the government pays when it borrows money. ₦6.55 trillion out of the ₦21.83 trillion total expenditure has been set aside for debt servicing in 2023.
We hear you screaming omo and we are too.
In the third quarter of 2022, the Debt Management Office (DMO) put Nigeria’s debt at ₦44.06 trillion. On January 4, 2023, the Director General of the DMO, Patience Oniha, breaking down the 2023 Appropriation Act said:
“Once it is passed by the national assembly, it means we will be seeing that figure (ways and means financing) included in the public debt. You will see a significant increase in public debt to ₦77 trillion.”
Scary fiscal parameters
If you go through the fiscal parameters — that is, assumptions made about the budget such as what the price of crude oil will trade at, inflation rate and so on, — a couple of things stand out that should set the alarm bells of Nigerians ringing.
Based on the initial budget proposal sent to the national assembly last year, the audit firm KPMG, broke down some of the assumptions. The graphic you’re about to see makes a comparison between the 2022 and 2023 fiscal years. Check out the percentage change for each item to give you a sense of the wahala that is brewing.
[Budget Assumption: KPMG]
No one knows for sure how the 2023 election will play out as that could also affect how the budget is implemented. One thing’s certain though — whoever’s coming in has work to do, and it’s not pretty.