President Muhammadu Buhari presented the 2023 Appropriation Bill, dubbed the ‘Budget of Fiscal Sustainability and Transition,’ to the National Assembly on Friday, October 7, 2022. The proposed total expenditure of N20.51 trillion, which includes N2.42 trillion spent by Government-Owned Enterprises (GOEs), is a record budget, surpassing the N19.76 trillion approved in the National Assembly’s 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP).
The 2023 expenditure template includes N744.11 billion in Statutory Transfers, N8.27 trillion in Non-Debt Recurrent Costs, N4.99 trillion in Personnel Costs, N854.8 billion in Pensions, Gratuities, and Retiree Benefits, N1.11 trillion in Overheads, N5.35 trillion in Capital Expenditure, including the capital component of Statutory Transfers, N6.31 trillion in Debt Service, and N247.73 billion in Sinking
The budget is based on fiscal assumptions such as an oil price benchmark of $70 per barrel, a daily oil production estimate of 1.69 million barrels (inclusive of condensates of 300,000 to 400,000 barrels per day), an N435.57/$ exchange rate, and a projected GDP growth rate of 3.75% and a 17.16% inflation rate.
 Based on these fiscal assumptions and parameters, total federally-collectable revenue is estimated at N16.87 trillion, total federally distributable revenue at N11.09 trillion, and total revenue available to fund the 2023 Federal Budget is estimated at N9.73 trillion, including revenues of 63 Government-Owned Enterprises.Â
 Oil revenue is projected at N1.92 trillion, non-oil taxes are estimated at N2.42 trillion, and FGN independent revenues are projected to be N2.2 trillion. Other revenues total N762 billion, while the retained revenues of the GOEs amount to N2.42 trillion.Â
 From the foregoing, looking at the budget estimated recurrent (non-debt) expenditure of N8.27tn or 40% of the proposed budget, it is 19.68% higher than the 2022 budget. This is very high, and it has to be tinkered with. Having an expansionary fiscal policy with this high level of fiscal deficit on the backdrop of a higher component of it skewed to consumption will not give the desired impact of a fiscal deficit. Moreso, it is more sustainable to empower the private sector to create jobs while the government creates a thriving business environment.Â
 Also, the declining capital expenditure and the rising debt provision call for caution. The capital expenditure, excluding the capital component of statutory transfer, is just N3.86tn or 19% of the proposed budget. This is low compared to the non-debt recurrent expenditure and personnel costs. This has been the trajectory over the years.  Â
 More worrisome is the debt service provision of N6.56tn as contained in the appropriation bill, which is 32% of total expenditure and 67.31% of total revenues. Again the debt service provision is high, even higher than 2021 N3.61 trillion or 21% of total expenditure and 34% of total revenues.  Â
 This leaves us with a deficit of N10.78tn, higher than last year’s deficit of about N8tn. With the deficit financing to come from borrowing: from external borrowings to the tune of N8.8 trillion ($20.3 billion) and bilateral/multilateral borrowings of N1.77 trillion amid concerns over the country’s high public debt, which was N42.845 trillion ($103.312 billion) as of June 2022 according to data from DMO, also calls for caution. We must reassess our debt sources to borrow at a lower rate or access more zero-interest loans like Sukuk, especially as we expect the deficit to widen going by revenue shortfall records. Â
Revenue targets have not been met over the years, as President Buhari is well aware. In his budget speech for 2023, he acknowledged this. “FG retained revenue was 3.66 trillion Naira as of July 31, 2022, excluding revenue from Government-Owned Enterprises.” As a result of the underperformance of oil and gas revenue sources, revenue collection was only 63 percent of our target.” If you extrapolate that, you would have ended the year with N6.3 trillion in revenue. So you made N6.3 trillion this year and plan to make N9.73 trillion the following year; that is a leap of faith and hope. The takeaway is that if things continue as they are, the deficit will most likely exceed the proposed amount. One recurring and contentious public issue is the gasoline subsidy, which has been a major drainpipe and contributor to our fiscal deficit. And if the new administration can muster the political will to eliminate fuel subsidies, the budget will be greatly relieved. The president stated that the fiscal impact of fuel subsidies has demonstrated that they are not sustainable. Though it is the correct decision, the president should have addressed it rather than passing it on to the next administration.
Although it is necessary, it must be done. According to official figures from the Nigerian National Petroleum Company (NNPCL), the country paid N1.372 trillion in fuel subsidies between January and June 2022. That equates to approximately N2.7 trillion in subsidy payments for 2022. In the 2023 budget, the government proposes a fuel subsidy of about N6.7 trillion. So, if you take any of this money and redirect it to more productive areas, you will not only save money and relieve the budget, but you will also reduce the revenue shortfall. MDAs are another critical area that must be rationalized in order to achieve significant savings. The government has set aside N8.27 trillion for non-debt service and N4.99 trillion for personnel costs. If the MDAs are rationalized, you will most likely reduce their ongoing costs. According to the budget, these are clear areas of savings that the National Assembly should critically examine, and they should shape the incoming administration’s outlook. Given current macroeconomic realities, the proposed GDP growth rate of 3.7% appears unattainable.
That growth may be difficult to achieve with the Central Bank in contractionary monetary policy mode, raising interest rates and the cash reserve ratio. On the one hand, high interest rates raise the cost of borrowing, reducing aggregate demand and investment. On the other hand, despite the high interest rates, the increase in CRR reduces the banks’ ability to make new loans. This slows down economic growth.
The expansionary fiscal policy, which could have offset the tightening monetary policy, is based on consumption rather than productivity. However, President Buhari’s consistency in presenting the budget on time has been a source of satisfaction. October is a good time, and the National Assembly has plenty of time to examine the budget in depth and critically, taking into account the comments and opinions of analysts, economists, and stakeholders in order to create a realistic, achievable, transitional, and sustainable budget.
