With the Federal Government exhausting its debt window, the only option available to the next administration is to find a path to sustainable budget funding, experts say.
The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, professor of Economics, Ike Ife and member of the Monetary Policy Committee of the Central Bank of Nigeria, Prof. Adeola Adenikinju, all proposed a radical departure for budget financing options, apart from uncontrolled borrowing. that’s the way to go.
Indeed, the 2023 appropriation Act presents the largest deficit in the history of budgeting in Nigeria.
The government of President Muhammadu Buhari has a fiscal position with an external debt that is $11.2 billion higher at $39.6 billion than it was in 1999 at $28.04 billion because the government has implemented a fiscal strategy based on debt to finance the budget deficit.
The sinking fund of N6.5 trillion, which represents 29 percent of the budget, is evidence that the government needs to rethink the source of N8.8 trillion from bilateral and multilateral development partners, as well as the domestic bond market.
Emmanuel thinks that for Nigeria to reduce the risk it is exposed to, the Senate should suspend the Pioneer Status Incentive established by the Income Tax Relief Act (Number 22 of 1971, as amended in 2011 & 2014) which gives the appropriate corporate income tax. waivers for the first five years.
He added: “The Senate should suspend the export expansion grant scheme under the Export Incentives Miscellaneous Provisions Act (Number 25 of 2003) which provides promissory notes to companies that export from Nigeria. This is because if you look at the Internal Debt Shares, Promissory Notes held by companies , as the modified incentive from the Export Expansion Grant is N514bn or 2.39% of the total internal debt.
“The Senate must suspend tax incentives because companies are waivers due to import duties under the Industrial Incentives Act. Change from fixed to a floating exchange rate model to unify rates, will increase government revenue by 50 percent that is due to oil receipts, given that DSDP in PMS subsidies it’s a number day. The legislative chamber must examine mines and minerals, including oil fields, oil mining, geological surveys and natural gas from the exclusive legislative list, as a means to give the state government control over resources for exploration, production, and royalty payments . to the Federal Government.”
He further asserted that this is because the state government owes 24.8 percent of the domestic debt stock, citing the example of Osun State with 2.5m ounces of gold owed N407 billion with monthly interest payments of N1.8 billion from the FAAC account through the Irrevocable Payment Standing Order (ISPO). .
The Dairy Hills chief added that gas price deregulation will attract the institutional capital needed to build gas gathering infrastructure in the center.
He noted that the IOC must remove gas from wells in accordance with the Law on re-injection of gas assigned to discover the removal and use of gas during the 12 months of oil field operations, explaining that this is mainly due to oil and gas. projected revenue of 10.2 percent from the 2023 Appropriation Act.
According to him, when looking at rebalancing the economy, the government must understand the relationship between monetary and fiscal policy.
Mrs. Zainab Ahmed, Minister of Finance, Budget and National Planning. Photo / facebook / Finminnigeria
He explained: “The prime example of this is the senate amendment section 24 (B) of the CBN Act which expands the scope of the restructuring of Nigeria’s foreign reserves from freely floating currency – conversion risk – into consideration; refers to the country’s special signature rights, the number of Central Banks that have foreign reserves with the Central Bank, production and export share. This is necessary to allow the CBN to increase the allocation of Nigeria’s foreign reserves with the People’s Bank of China from 2.7 percent, considering that China controls 26 percent of Nigeria’s international trade volume.
“This is because, holding enough foreign currency to support the liquidity required by China’s commercial banks for settlement is the key to enabling the Naira-Yuan Swap which will reduce the pressure on the naira, reduce inflation, reduce the MPR and consequently reduce the cost of borrowing from inflation in line with the interest yield curve.
On his part, Prof. Ike Ife believes that the sale of part of the Nigerian National Petroleum Corporation Limited (NNPCL) is urgently needed to address the revenue gap.
He also blamed the national oil company for the cash crisis the country is facing.
“Selling shares in NNPCL is a reasonable way to raise funds. NNPC is throwing a spanner in the works. You do not subsidize consumption as a matter of principle, but production is subsidized to create wealth. The reason I am focused on selling some shares in NNPCL is that the signing of the Industrial Act The oil, which was intended to transform the oil and gas industry, has not yet got it. After NNPCL was transformed into a profit-oriented company, NNPCL immediately counted crude oil, which meant that about three billion dollars that the company sent to the CBN stopped. The money was used to help the CBN finance imports $1.8 billion per month.
The net effect of all this is that we now have a wider crisis in foreign currencies. This is exacerbated by the opacity of Nigerian crude oil exports and the amount of imported PMS,” he said.
He believes that the expansion of the revenue base remains a veritable option for Nigeria to raise funds.
“It’s not just overtaxing that has been in the tax net, but widening the dragnet, which I think the government has done with the revenue strategic initiative. That quantum is not enough to cover the gap,” he said.
Prof. Ife identified the ways and means of CBN’s N24 trillion loan to the Federal Government as another albatross.
“The overall debt will go from N43 trillion to about N77 trillion. That is the big elephant in the room and unless it is sorted through the bond swap, which is lower at nine percent, then there is trouble.
Otherwise, the government will be forced to pay 18.5 percent as interest. Until we come to a reasonable arrangement, the debt must be paid at 16 percent, plus two to three percent of the margin, which brings the total debt to 19.5 percent. So, that’s a lot of interest to charge the amount of 24 trillion. That interest will only remove the treasury. The government had to roll it into guarantees and cut interest rates to nine percent, which is lower than treasury bills. Treasury bill for one year. The bonds will be spread over several years and can be restructured in the future and will provide fiscal space for the government,” he said.
According to the professor, another way to generate revenue is to prevent revenue leakage.
“Leakages are still alarming. For example, the waivers are too much. I heard some lawmakers claim that the waivers could be up to N15 trillion. How can the waivers be higher than the government’s revenue? With only five companies accounting for N15 trillion this is another poser that is difficult to understand,” he said.
[FILES] Godwin Emefiele. Photo/TWITTER/CENBANK
While he would not advocate a complete abolition to encourage companies to invest in the country, Prof. Ife urged the Federal Government to reduce the reduction to half.
Prof. Ife also identified the N206 billion proceeds expected from the privatization exercise, but cautioned that the projected revenue is small considering where Nigeria is at the moment.
In a slight departure from the arguments presented by Prof. Ife and Emmanuel, a professor of Economics at the University of Ibadan, Adeola Adenikinju, said the attack received by the CBN through giving way and means more than the ceiling is misplaced and misunderstood.
He said that most of the countries in the world are facing huge debt because of the COVID-19 and the current war between Russia and Ukraine, saying that to ensure the economy continues, many countries have to rely on debt.
He said that when the country’s revenue falls, the option is to cut costs and live by means, adding, “if the Nigerian government had chosen that option, many states would not be able to pay salaries today. The state government can pay salaries because funds are made available by the Central Bank Nigeria.
Adenikinju defended the way the N24 trillion was given to the Federal Government thus: “Without the intervention, Nigeria would be in bigger trouble today. The government cannot afford to spend, if the economy can collapse. Some countries borrow more than half of their budget . Here, Nigeria did about 2.3 percent of the budget during the COVID-19 pandemic, which I think is very good. A lot of money is coming from the CBN. The government itself has a lot of fiscal constraints. The fact that we came out of recession so quickly is against what the World Bank predicted and . The IMF depends on the extra money the CBN spends.
He lamented that PMS subsidy is one of the main challenges inhibiting the ability of the Federal Government to spend, saying the next President has a job well cut out for him.
He added: “Whoever becomes President in next month’s election must find an answer to this subsidy. Out of about six trillion naira, the country’s spending this year is almost equal to the subsidy. As a country, we must agree on how to move forward. If the subsidy continues and Nigerians do not want the government to borrow, where will the government find money to spend?Government revenue divided by population is one of the lowest in the world.
While the new government must deal with revenue challenges, Adenikinju emphasized the need for Nigeria to develop a fully federal structure where most of the Federal Government’s responsibilities will return to the state and provide infrastructure that is carried out by the private sector.