Petrol subsidy nears 6.7 trillion naira as debt service outpaces revenue –
The federal government has projected that the petrol subsidy will gobble up 6.7 trillion naira in 2023, if bold steps are not taken to eliminate it, even as debt service has exceeded its revenue in during the first four months of this year.
Zainab Ahmed, Minister of Finance, Budget and National Planning, said on Thursday that huge subsidies had overburdened public finances and pushed the budget deficit up to 3.09 trillion naira between January and April this year.
She spoke in Abuja during the public consultation on the Draft Medium Term Fiscal/Expenditure Strategy Paper 2023-2025, which officially launched the preparation of the 2023 budget.
Between January and April this year, Nigeria’s oil and gas revenues fell 51% from budget estimates to N1.23 trillion as expected benefits from higher oil prices continued to elude in the country due to a large shortfall in oil production and the burden of gasoline subsidies.
For the year 2022, oil revenue was projected at 9.37 trillion naira, but only 39% of the proposed 3.12 trillion naira for April-January has been realized.
Ahmed said that despite rising oil prices, oil revenues underperformed due to “oil production shutdown resulting from pipeline vandalism and crude oil theft; and the high cost of gasoline subsidies due to the higher landing costs of imported products.
The data indicates that in April 2022, the undistributed federal government revenue was 1.63 trillion naira, only 49% of the prorated target of 3.32 trillion naira.
Its share of oil revenue was N285.38 billion (representing a performance of 39%), while non-oil tax revenue totaled N632.56 billion, representing a performance of 84%. Corporate income tax and value added tax collections were N298.83 billion and N102.97 billion, 99% and 98% of their respective targets.
Read also: The immorality of oil subsidies
Customs collections (composed of import duties, excise and fees, as well as special levies on the federation account) fell below the target of 76.77 billion naira (25.42% ).
Other income amounted to 664.64 billion naira, of which self-employed income was 394.09 billion naira.
However, overall expenditure for 2022 which was estimated at 17.32 trillion naira, with a prorated spending target of 5.77 trillion naira at the end of April, but the actual expenditure was 4.72 trillion naira , said the minister.
Of this amount, N1.94 trillion was for debt servicing, N1.26 trillion for personnel costs including pensions, while only N773.63 billion was spent on utility expenses. investment.
On how the government intends to fund the huge subsidy burden in the future, Ahmed said the transition of the Nigerian National Petroleum Corporation into a commercial entity has raised hopes that the huge bill could be offset by company fees and taxes, which will not be the case. no longer contribute to the federation.
“NNPC will pay royalties, dividends and taxes; So, although the income is not monthly, we will establish an agreement with them on how they will be paid. It is possible to work out an arrangement where payment could be made to the federation monthly or quarterly. We can negotiate that these remittances be made on a quarterly basis,” she said.
She confirmed that for about eight months before the transition from NNPC, the federation received no revenue from the national oil company, mainly because it covered the cost of the fuel subsidy.
“Assuming they did not pay this subsidy, this value would have been returned to the federation and this is the arrangement we seek to continue in 2023,” the minister said.
“Therefore it will still be a federation expense but it will be undertaken by NNPC as a supplier of last resort and we see a situation where maybe new refineries will come online and other traders will start to find the PMS retail market attractive enough to invest in buying fuel themselves and selling in the Nigerian market.
“That’s why it’s important for us to look very seriously at this issue of removing fuel subsidies, because no distributor is willing to buy PMS after getting the currency and come and sell it at a lower price.”
Ahmed said the government’s projected fiscal outcomes over the medium term are presented under two scenarios based on the underlying fiscal parameters/assumptions, with implications for net growth in the Federation account and projected deficit levels.
The first indicates what she called “the status quo scenario”, which assumes that the subsidy on the PMS, estimated at 6.72 trillion naira for 2023, will be retained and fully provisioned.
The second, she says, is “the reform scenario,” which assumes the gasoline subsidy will remain until mid-2023, based on the 18-month extension announced in early 2021, in which case only 3 .36 trillion naira will be expected. .
In addition, the application of the public enterprise (PE) performance management framework will be stricter, which will significantly increase operating surpluses and dividend remittances in 2023.
The draft MTEF/FSP 2023-2025 has been prepared against the backdrop of persistent global challenges occasioned by the lingering effects of the COVID-19 pandemic, as well as rising food and fuel prices due to war. in Ukraine.
Ahmed said fiscal risks were somewhat elevated, following weaker than expected national economic performance and structural issues in the national economy, with revenue generation remaining the federation’s main fiscal constraint.
According to her, in the first scenario, the overall federal government expenditure for 2023 is estimated at 16.98 trillion naira, which is 337.05 billion naira (1.9%) less than the 2022 budget, but 20, 29 trillion naira and 22.73 trillion naira are projected. to be spent in 2024 and 2025, respectively.
She said that given the very limited fiscal space, it is not possible to forecast capital spending by ministries, departments and agencies in 2023 beyond projects funded by multilateral/bilateral loans and donors. .
Another scenario shows overall spending for 2023 estimated at 17.990 billion naira, or 669.82 billion naira (3.9%) more than in 2022, including the Egyptian government. The sums of N20.29 trillion and N22.73 trillion are expected to be spent by the federal government in 2024 and 2025, respectively.
On the revenue side, N6.34 trillion has been projected for 2023, of which only N373.17 trillion or 5.9% comes from oil-related sources in the foreground. The balance of N5.97 trillion is to come from non-oil sources.
The minister said that in addition to subsidy reform, the second scenario assumes an aggressive implementation of cost-revenue limits for state-owned enterprises. With these, 2023 revenue is projected at 8.46 trillion naira (15.1% or 1.51 trillion naira less than the 2022 budget), but 2.12 trillion naira more than the previous.
Of this amount, N1.99 trillion, or 23.6 percent, is expected to come from oil-related sources, while the balance will come from non-oil sources.
Key parameters and other macroeconomic projections determining the medium-term revenue and expenditure framework have been revised based on emerging realities as the initial projection is unlikely to be realized based on current trends, according to the minister.
Consequently, the medium-term projections deviate from the projections of the National Development Plan 2021-2025. They have been updated based on a combination of current realities and a modified medium-term outlook.
In the draft MTEF, the federal government projected an oil benchmark of $70/barrel, oil production of 1.69 million barrels per day and an exchange rate of N435.57/$.
Real GDP growth is expected to reach 3.75% in 2023, compared to a revised projection of 3.55% for 2022. Growth is expected to slow to 3.30% in 2024 before picking up to 3.46% in 2025.
The inflation rate is expected to average 17.16% in 2023, up from the revised average of 16.11% for 2022.
Investments, especially from foreign sources, are expected to be held back by interest rate hikes in advanced economies, currency management issues and other domestic challenges, including insecurity, Ahmed said.
Ben Akabueze, director general of the Budget Office, said that from January to April, the payment of the subsidy exceeded the revenue generated by NNPC.
He said, “That’s why we consumed all the income and they couldn’t pay anything out. This is because during the period from January to April, Nigeria’s average daily crude production was 1.3 million barrels per day, while the budget for 2022 was initially based on 1.86 million barrels per day.
“Earlier in the year, when we noticed there were challenges, that was revised down to 1.6 million barrels, but from January to April production was down 300,000 barrels per year. day compared to the budget and it is because of the theft of oil and the vandalism of the pipelines in the Niger delta.
“You can imagine if we pumped an additional 300,000 barrels of crude oil a day, what that would have meant for government revenue over the period. And even better, if we were able to meet our current OPEC quota of around 1.8 million barrels. We are therefore about 500,000 barrels short of our quota, even if currently the capacity to produce more than our OPEC quota exists. This is a problem that also needs to be tackled, by tackling oil theft and vandalism of pipelines and that is the job of security agencies.