President Muhammadu Buhari acknowledged yesterday, for the first time since taking office in 2015, how much petroleum subsidies had eroded national revenues, making it impossible for the country to adequately fund its annual budget despite significant increases in crude oil prices.
Buhari made the remarks in Abuja while presenting a N16.39 trillion Appropriation Bill for the fiscal year 2022 to a joint session of the National Assembly.
However, Dr. Ahmad Lawan, Chairman of the National Assembly and President of the Senate, criticized the rising level of the budget deficit.
Nonetheless, there was optimism for an early passage of the 2022 budget proposal, as Speaker of the House of Representatives, Hon. Femi Gbajabiamila, assured the president of the National Assembly’s prompt consideration of the estimates.
Similarly, the ruling All Progressives Congress (APC) said yesterday that the proposed 2022 budget was intended to accelerate the government’s ongoing efforts to diversify the economy.
However, the main opposition Peoples Democratic Party (PDP) described the proposed budget as “another budget of sorrow and pain for Nigerians.”
The Coalition of United Political Parties (CUPP) slammed the president’s budget, claiming that despite being his final full-year budget, it lacks items that will allow him to leave office with some sense of accomplishment.
The 2022 Appropriation Bill was dubbed the “Budget of Economic Growth and Sustainability.”
Buhari recalled that the Petroleum Products Pricing Regulatory Agency (PPPRA) had announced in March 2020 that the price of gasoline would now be determined by market forces.
“However, as the combination of rising crude oil prices and the exchange rate combined to push the price above the previously regulated price of N145 per litre, opposition to the policy of price deregulation hardened on the part of labor unions in particular,” he said.
“The government was forced to halt further price increases while the subject was being researched.” This gasoline subsidy significantly reduced revenues that should have been available to fund the budget.”
Buhari stated that budget allocations to Ministries, Departments, and Agencies (MDAs) were guided by the strategic objectives of the National Development Plan 2021-2025. He stated that the plan prioritized economic diversification through robust Micro, Small and Medium Enterprises (MSMEs) growth; investment in critical infrastructure; strengthening security and ensuring good governance; enabling a vibrant, educated, and healthy populace; reducing poverty; and minimizing regional, economic, and social disparities.
The president emphasized that the security sector would continue to be a priority in the 2022 budget, saying, “Defense and internal security will continue to be our top priority.”
We remain steadfastly committed to the safety of people, property, and investments across the country. We will continue to ensure that our valiant men and women in the armed forces, police, and paramilitary units are properly equipped, compensated, and motivated.”
The president praised the National Assembly for its quick consideration and passage of the supplementary appropriation bill 2021. He stated that this demonstrated the federal legislature’s commitment to working together to combat the COVID-19 pandemic and address the country’s various security challenges.
He also praised the National Assembly for its prompt consideration and approval of the 2022-2024 Medium-Term Expenditure Framework and Fiscal Strategy Paper.
“Our hope is that the National Assembly will continue to partner with the executive by ensuring that deliberations on the 2022 Budget are completed before the end of this year so that the Appropriation Act can come into effect by the first of January 2022,” the president said.
Buhari stated that over the last few days, consultations were held with the Presidential Steering Committee on COVID-19 and the leadership of the National Assembly on how best to present the 2022 budget proposal while keeping in mind the deep-rooted tradition in place and the guidelines for safe mass gatherings.
He stated that it was decided that the most responsible and respectful approach would be to hold a smaller gathering while allowing the Minister of Finance, Budget, and National Planning to provide fuller details of the proposals at a larger event.
According to him, the 2022 to 2024 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) set the parameters for the 2022 Budget.
He stated that the oil price benchmark was set at $57 per barrel, with a daily oil production estimate of 1.88 million barrels (inclusive of condensates of 300,000 to 400,000 barrels) per day projected.
Buhari stated that the exchange rate was set at N410.15 per dollar and projected a 4.2 percent GDP growth rate and a 13% inflation rate. He went on to say that based on these fiscal assumptions and parameters, total federally collectible revenue in 2022 is expected to be N17.70 trillion.
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The president stated that total federally distributable revenue in 2022 is estimated to be N12.72 trillion, while total revenue available to fund the 2022 budget is estimated to be N10.13 trillion. This includes N63.38 billion in grants and aid, as well as revenues from 63 government-owned enterprises.
Buhari stated that oil revenue was expected to be N3.16 trillion, non-oil taxes were expected to be N2.13 trillion, and FGN independent revenues were expected to be N1.82 trillion.
The president stated that a total expenditure of N16.39 trillion was proposed for the federal government in 2022.
He stated that the proposed expenditure included: Statutory Transfers of N768.28 billion, Non-debt Recurrent Costs of N6.83 trillion, Personnel Costs of N4.11 trillion, Pensions, Gratuities, and Retiree Benefits of N577.0 billion, Overheads of N792.39 billion, Capital Expenditure of N5.35 trillion, including the capital component of Statutory Transfers; Debt Service of N3.61 trillion, and Sinking Fund of N
Buhari stated, “We expect the federal government’s total fiscal operations to result in a deficit of N6.26 trillion.” This amounts to 3.39 percent of estimated GDP, which is slightly higher than the three percent threshold established by the Fiscal Responsibility Act of 2007. Countries around the world must, by necessity, exceed their fiscal thresholds in order for their economies to survive and thrive. “We need to exceed this threshold considering our collective desire to continue tackling the existential security challenges confronting our country.”
Buhari stated that the federal government intended to finance the deficit primarily through new borrowings totaling N5.01 trillion, N90.73 billion from privatization proceeds, and N1.16 trillion in drawdowns on loans secured for specific development projects.
“Some have expressed concern about our resort to borrowing to finance our fiscal gaps,” the president said. They have every right to be concerned. However, we believe that the federal government’s debt is still manageable. Borrowings are for specific strategic projects and can be verified publicly.”
Buhari explained that the country had experienced two economic recessions during his presidency, emphasizing that in both cases, the country had to spend its way out of the recession, which necessitated a resort to increasing the public debt.
“It is unlikely that our recovery from each of the two recessions would have been as rapid without the sustained government expenditure funded by debt,” he said.
In terms of parameters and fiscal assumptions, the president stated that the country’s revenue-to-GDP ratio should be increased from about 8% now to 15% by 2025. He stated that at that level of revenue, the debt service-to-revenue ratio would no longer be concerning.
“To put it simply, we do not have a debt sustainability problem, but a revenue challenge that we are determined to address to ensure our debts remain sustainable,” Buhari said.
The president stated that his government had used loans to finance critical development projects and programs aimed at improving the economic environment and ensuring the effective delivery of public services to the people.
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He stated that his government prioritized the completion of major road and rail projects, the effective implementation of power sector projects, the provision of potable water, the construction of irrigation infrastructure and dams across the country, and critical health projects such as the strengthening of national emergency medical services and ambulance systems, the procurement of vaccines, polio eradication, and the upgrading of Primary Health Care Centres across the six geopolitical zones.
Buhari stated that his administration will strengthen the frameworks for concessions and public-private partnerships (PPPs) in 2022, and that capital projects that are ripe for PPPs by definition will be developed for private sector participation.
On the performance of the 2021 budget, Buhari stated that in the 2021 Fiscal Framework, a total revenue of N8.12 trillion was projected to fund aggregate federal expenditure of N14.57 trillion (inclusive of the supplementary budget), while actual revenues were 34% below target as of July 2021, owing primarily to underperformance of oil and gas revenue sources.
Buhari stated that the federal government’s retained revenues (excluding Government Owned Enterprises) amount to
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