A review of 2021 federal budget performance

Last week, the Minister of Finance presented the draft Medium Term Expenditure Framework 2022-2024 to stakeholders. The MTEF is the policy framework that backgrounds the federal budget and the parametres of revenue that go into the distributable pool account called the Federation Account. The presentation also provided the opportunity to report on the performance of the 2021 federal budget in terms of the Federal Government revenue and expenditure as well as the inflow of revenue into the Federation Account. I seek to review the key issues and matters arising from the performance of the 2021 federal budget.

In the review of the performance of the 2021 federal budget, the link between revenue and expenditure stood out as a huge challenge. At the end of May 2021, the retained revenue of the Federal Government was N1.844 trillion, being 67% of the prorated target. The total FGN expenditure was N4.86 trillion, representing 92.7% of the prorated target. In essence, while the realised target of revenue in a budget which was heavy on deficit financing at the initial period was 67%, expenditure was far higher at 92% of projection. Thus, retained revenue as a proportion of actual expenditure was 37.8% – not up to 40% of the expenditure. The deduction is that the balance of 62.2% of the expenditure was from deficit financing. The breakdown of the expenditure shows that N1.80 trillion was used for debt service which is 37% of overall expenditure. As a percentage of the retained revenue, debt service was 97.8% leaving only 2.2% of retained revenue after debt service. The sum of N1.50 trillion was dedicated to personnel cost which is 31% of expenditure as well as 81.5% of retained revenue while N973.13 billion was released for capital expenditure which is 20% of overall expenditure.

The disaggregation of revenue showed that non-oil revenue performed far better than oil revenue. Companies Income Tax  and Value Added Tax collections overshot budget targets with N290.90 billion and N123.85 billion, representing 102% and 125% respectively of the prorated targets for the period. Customs collection was N204.0 billion (86% of target). Independent revenue of N478.01 billion overshot projection by 10.1%. Furthermore, electronic money transfer levy (stamp duties) underperformed by 77.4%. On the other hand, the FGN share of oil revenues was N289.61 billion (which represents 50% performance.

The very poor performance of electronic money transfer levy is unexplained considering that there is no evidence to show a reduction in electronic money transfers. It further questions the empirical basis and credibility of that revenue forecast. Is the poor performance the result of poor revenue forecast or leakages in the system? This discourse is inclined to the latter because the stamp duties collections of 2020 have not yet been accounted for. The consolidated 4th quarter and 2020 budget implementation report indicated that nothing came into the account at a time stamp duty was collected for the whole year. This is not true and cannot be true.

For the poor performance of the oil sector, the MTEF states that this is mainly attributable to petroleum subsidy cost which was not provided for in the 2021 Budget. This is the big elephant in the room and the Nigerian National Petroleum Corporation is capitalising on this to withhold allocations due to the Federation Account. Recent reports from the NNPC indicate that we are paying subsidies for not less than 60 million litres of petroleum products every day and there were days when we purportedly consumed up to 103 million litres of petroleum products. At 103 million litres a day, the subsidy at N96 per litre amounts to N9.88 billion per day and N296 billion per month. At an average of 60 million litres a day, the subsidy is N5.76 billion a day and N172.8 billion a month. This is literally “insane” and not sustainable either in the short, medium, or long term.

Furthermore, these figures cannot be the true consumption of Nigerians. These figures are grossly inflated and could possibly be the actual consumption for the whole of West Africa. Recall that during the Jonathan era, when the economy was performing better in terms of the Gross Domestic Product, employment and general macroeconomic fundamentals, implying that there was higher economic activity then, the reported consumption never exceeded 35 million litres a day. Even then, many Nigerians thought that the figures were padded by between five and 10 million litres. With a reduced GDP and reduced economic activities, company and factory closures, increased unemployment, the expectation is for a decrease in consumption. However, the consumption is reported to have more than trebled. This cannot be true. It is a sad tale of stealing, smuggling, economic sabotage, and banditry at the highest levels. The NNPC and the Ministry of Petroleum Resources need to come clean. They can try another story on the quantum of products consumed as the current one cannot even convince a one-month-old baby.

The implication of the foregoing is that Nigeria is broke and if it is a private sector concern, it would have been due for liquidation. A situation where debt service takes 98% of revenue cannot be a sign of sustainability.  It is a clear sign of lack of fiscal prudence. Borrowing money to pay salaries as in the extant case is against the provisions of the Fiscal Responsibility Act 2007. Even if we adopt the usual argument of the Ministry of Finance that we have a revenue challenge as against a debt challenge, the Federal Government has failed to provide a resolution to the revenue challenge. The unfortunate part of this is that the Federal Government is still proposing to borrow more and more as it has evidently concluded that there is no alternative to borrowing. Borrowing at a time the source of repaying the debt is very doubtful can only be defined as fiscal recklessness.

Allowing aggravated leakages in the fiscal system at a time of a fiscal crisis – electronic money transfer and petroleum subsidies – can only lead to bankruptcy. Furthermore, having spent over N3 trillion in deficit financing in the first five months of the year, the FGN will exceed the deficit projection for the year. If we recall that fuel subsidy was purportedly removed last year but the depreciating value of the naira coupled with improved crude oil price led to a situation where the NNPC seems to be providing a subsidy again. The subsidy challenge will not go away until we resolve issues on the stability of the naira and our macroeconomic fundamentals. A situation where debt service and personnel expenditure had 68% of expenditure while capital expenditure accounted for a paltry 20% is not sustainable, especially in an infrastructure-starved economy like Nigeria.

Like the political and security situation, the Nigerian economy is in dire straits and needs urgent measures to start the process of bringing it back to life. A national dialogue on economic measures that will restore the country is urgently overdue. This is not about the current ministers or members of the National Assembly because their best is not good enough for the nation.