December 29, 2022/CSL Research
The House of Representatives yesterday passed the 2023 appropriation bill. The total budget was increased to N21.82tn compared with N20.51tn earlier presented by President Muhammadu Buhari. A breakdown of the budget shows an allocation of N967.5bn for statutory transfers, N6.6tn for debt servicing, N8.3tn for recurrent expenditure, and N5.9tn for capital expenditure.
This budget is predicated on revenue projections of N9.73tn which includes gross revenues from 63 government owned enterprises totalling N3.48tn, FGN oil revenue share of N1.92tn, non-oil taxes estimated at N2.43tn, and FGN Independent revenues projected to amount to N2.21tn. In aggregate, 20% of projected revenue is expected from the oil sector, while 80% is to be earned from the non-oil sector.
The projected fiscal outcome for 2023 is also based on a PMS subsidy reform scenario. In the 2023 budget, it is assumed that fuel subsidy will remain up to mid-2023 based on the 18-month extension announced in early 2022, Consequently, only N336tn was provided for fuel subsidy. It is expected that the fuel subsidy will be removed totally before the end of 2023.
While we expect the removal of the controversial fuel subsidies to be positive for the government’s fiscal position, we expect a back lash from an already impoverished populace, which may make it difficult for the incoming administration to achieve a total elimination of the subsidies.
Meanwhile, the Senate has approved the request of the President for N819.54bn supplementary budget. A breakdown of the supplementary budget shows that the ministry of agriculture is to get N69bn, the ministry of water resources gets N15.5bn, FCT gets N30bn, while the ministry of works and housing gets N704bn. The supplementary appropriation request is primarily meant for the capital expenditure component of the 2022 budget.
This new supplementary budget has increased the 2022 budget deficit to N8.17tn, and the deficitto-GDP ratio to 4.43%. The Senate had earlier extended the timeline for the implementation of the N18.12tn 2022 budget to March 31, 2023, to implement the projects listed in the supplementary bill. Given the provisions of clause 12 of the Appropriation Act and section 318 of the 1999 constitution, which stipulates 12 calendar months for implementation of the budget in any fiscal year, the 2022 budget is supposed to close on 31 December 2022, having started on January 1, 2022, but the president had sought the amendment on the Act for an
extension of the implementation period.
The 2022 supplementary bill and the high budget deficit of the 2023 appropriation bill will continue to increase Nigeria’s debt service ratio considering current economic realities, which do not seem set to improve in the short to medium term.
The country’s total debt portfolio, with the inclusion of the government’s borrowings from the CBN (Ways and meansestimated at 23.7trn if currently requested N1trn is granted), amounts to N67.76trn, and debt to GDP ratio comes to 39.0% (based on FY 2021 GDP data at current prices). This raises strong debt sustainability concerns as the country’s relatively moderate debt level has increasingly become vulnerable due to high-interest payments, which continue to absorb a significant portion of Federal Government revenues.
