• Capital funding suffers setback, dips by 33%
• 37% rise in debt service wipes savings on non-debt recurrent cost
• Worry as implementation of 2023, 2024 budgets runs side-by-side
The fiscal condition of the Federal Government might have become messier last year than any member of the national economic management team would admit as debt-servicing cost rose by N1.56 trillion in a year, forcing the capital project funding (which is abysmally low historically) to take a 33 per cent haircut just as the unfunded deficit climbed up to almost N1 trillion for the first time in the history of the country.
In a desperate effort to shore up the capital budget performance of the 2023 budget, the National Assembly has extended its execution to December. But that has raised more confusion than it helps to placate the citizens, who question the logic of implementing multiple budgets (side-by-side) in the same fiscal year.
Analysis of data obtained from the 2023 budget performance as of the end of last September suggests that the government would necessarily adopt an out-of-the-world approach to break what appears like a fiscal disaster waiting to happen.
As shown by the transition budget, revenue growth is crawling far behind the fast-growing basic expenditure spending, which is worsened by a debt-servicing burden that is outstretching the earning capacity.
Amid the widening gap, the government, rather than biting the bullet, continues with a self-serving spending tradition while paying lip service to rein in the culture of official corruption. Private jets, renovation of public official residences and sundry requests continue to feature in the public procurement plans of the government, raising unhealthy debate about the priority of the state.
The uptick in spending, which is not supported by significant expansion in revenue mobilisation, has continued to impact public finance negatively in the form of rising public debt that has far exceeded the self-imposed target of 40 per cent of the gross domestic product (GDP) .
Consequently, after the 2021 to 2022 breather when the cost of debt servicing slowed and touched 57 per cent two years ago, the debt-to-revenue ratio (which shows the proportion of earned income that goes into payment of interest), is returning to the 2020 level again.
In the first nine months of last year, the figure rose to 78 per cent. Whereas the total revenue available to the government to fund the budget was N7.46 trillion, debt service gulped N5.79 trillion. That means for every N1 earned by the government, 78 kobo is wired to the bank accounts of creditors in the form of interest payment.
Sadly, real-time data may be more scarring than what the backward-looking figures have shown. For instance, the Office of the Accountant General of the Federation said only an infinitesimal 12 per cent of the N2.69 trillion-revenue target for the first quarter of the year was received. That was the same period the Debt Management Office (DMO) put the cost of debt service at N1.49 trillion, nearly fivefold the amount received.
To continue to fulfill its debt obligation and provide basic governance services, the government could borrow its way to the leagues of countries whose debt-to-GDP ratios have crossed 100 per cent. But it may be running out of steam in the meantime as suggested by data obtained from multiple ministries, departments and agencies (MDAs).
The budget performance report itself shows a strange pivot in the historical debt spread. For the first time last year, multilateral/bilateral project-tied loans and foreign borrowing columns in the fiscal spreadsheet were blank for three consecutive quarters, leaving the burden of funding the seemingly broke government to the local debt market.
The increasingly reluctant foreign creditors must have created a hole in the form of an unfunded deficit the Budget Office put at N979 billion. The government had always found its way of nudging out unfunded deficits from its book. But last year, it could only borrow N4.4 trillion or 50.6 per cent of the N8.7 trillion it intended to borrow to augment its depleting self-funding sources between January and September.
Consequently, the recurrent expenditure was trimmed. But capital expenditure bore much of the consequence, as it was slashed to N1.28 trillion – an average of N427 billion quarterly spending. But the figure stops at mere release. According to the document, about 22 per cent was still sitting with the MDAs as utilised at the time the report was prepared.
The National Assembly earlier extended the implementation of the capital component of the 2023 budget to June only to convene an emergency last week to shift its validity and that of its supplementary by another six months.
The consistent shift of the closure date of the budget has raised several questions about the essence of a yearly budget and the essence of the usefulness of the 2024 appropriation when last year’s budget would now run the full course of 2024.
Indeed, the rising debt financing continues to push up the recurrent expenditure significantly. The figure rose to N9.88 trillion in the first three quarters of last year, 13.7 per cent or N1.19 trillion up from N8.69 trillion recorded in the corresponding period of 2022.
Within the three quarters, the government overshot N1.2 trillion budgeted for the controversial Ways and Means (W&M) interest rate funding by N496 billion, that is by over 40 per cent. In the first quarter, the government paid the Central Bank of Nigeria (CBN), a total of N912.3 billion and it paid N784.3 billion in the second quarter.
For undisclosed reasons, the spending was zero in the third quarter. About N23 trillion owed to the CBN, which is 100 per cent owed by the government, was said to have been restructured in the last days of ex-President Muhammadu Buhari’s administration. The debt was transferred from the books of the apex bank to the Debt Management Office (DMO) for management was a bond was issued to the bank. There were reports that the last administration assessed more additional loans from the bank that were not part of the securitised amount. Subsequently, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said the government had commenced an investigation to determine the actual amount owed to the monetary authority.
Some analysts had suggested the government sought forbearance from the CBN over the debt servicing.It was not clear as at press time whether the government has been able to secure relief from the CBN, waving interest payment on the existing CBN overdraft leading to zero payment in the third quarter of last year.
For the first time, the prorated non-debt recurrent expenditure of the government dropped. The figure fell from N4.45 trillion in the first three quarters of 2022 to N4.09 trillion last year, with the government saving about eight per cent. The amount spent was also about 50 per cent less than the estimated prorated N6.25 trillion.
But it did not move the needle in the government’s weakening overall fiscal position. For instance, the composite recurrent, driven by debt service financing, rose by almost 18 per cent year-on-year or 1.2 trillion in a space of 12 months.
Also, the savings in non-debt recurrent expenditure did not translate to better capital expenditure funding. In the nine months, the total funds released for capital project execution was among the lowest in recent history – N1.28 trillion. The amount was about 60 per cent less than what the government released in the same time frame in 2022 (N1.92 trillion).
The capital expenditure is 22 per cent of the debt service expenditure, 13 per cent of recurrent expenditure and a mere 10.9 per cent of the entire spending outlay for the period. Sadly, the amount released for federal capital projects across the country in nine months was 19 per cent of the projected N6.79 trillion capital expenditure for the year.
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