BY EMEKA EJERE
Ahead of passing into law of the 2023 Appropriation Bill, growing signs of disharmony between the economic reality and the key benchmarks of the proposal is raising fears of having an unrealistic budget that can only worsen the country’s fiscal crisis.
The N20.51trillion budget proposal with a deficit of N10.78trn is to be based on the key assumptions of oil benchmark estimated at $70 per barrel, oil production of 1.69 million barrels, exchange rate of N435.57 to $1, while inflation is expected to grow at 17.16 percent with GDP growth rate projected at 3.75 percent.
But there are concerns that the severe scarcity of dollars with no end in sight means that the local currency may head for N500/$ in the NAFEX market and up to N1000/$ in the parallel market in 2023.
Although, the naira rebounded by about 20.8 percent to 710/dollar at the parallel market on Friday in Lagos and Abuja, suspicion of imminent reversal of the gains is driving fears that the scary prediction of N1000/$ by December may still come to fruition.
The naira, which fell consistently throughout last week against the U.S. dollar following the announcement by the Federal Government to redesign its higher denominations, tumbled to an all-time low of 910/dollar penultimate weekend.
However, the currency began a rebound against the greenback on Monday (Nov 7), after a week-long clampdown on foreign exchange dealers in Abuja, Lagos, Kano and other major cities by the personnel of the Economic and Financial Crimes Commission (EFCC).
Similarly, there are also concerns that floods and global crisis due to Russia-Ukraine war could further worsen inflation and poverty in the country, making the projections untenable. Nigeria’s inflation rate surged to 20.77% in September 2022, up from 20.52% recorded in the previous month.
Although the National Assembly is billed to go ahead with consideration and passage of the budget as proposed by President Muhammadu Buhari, Business Hallmark learnt that the federal legislature may advise the executive to forward a supplementary budget to reflect the recent sharp fall in the value of naira.
It was also gathered that lawmakers at the House of Representatives may not tinker with the parameters of the budget, which, according to them, were based on the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper passed by the parliament.
In the MTEF/FSP, the National Assembly had, among other parameters, approved an exchange rate of N437.57 to a dollar and an oil benchmark of $73 per barrel. Last, oil price was $95 per barrel, while output rose to 1.01mbpd, the highest in June, 2022.
Last week, Deputy Chairman of the House Committee on Appropriations, Iduma Igariwey, reportedly said the lawmakers might not make drastic changes to the budget. Igariwey was responding to a question bothering on whether the National Assembly would amend the parameters, especially the proposed exchange rate to reflect the current realities regarding the naira.“
The National Assembly, as a constitutional creation, can only act within the ambit of the Constitution. By virtue of Section 81 of the 1999 Constitution, it is the Executive arm that initiates the budget-making process and this the Executive arm does, through the President, when he presents the estimates/ proposals to the National Assembly.
“However, bear in mind that the budget is preceded by the Medium Term Expenditure Framework and Fiscal Strategy Paper. What it means is that the budget process is informed by an economic plan.
“Now, in considering the budget estimates presented by Mr. President, the National Assembly is expected to make only marginal input. Such input has even been controversial in the past, when the good and well considered input of the parliament has been disparaged as ‘budget padding.’
“To deal with your question more specifically, the National Assembly is not likely going to make any substantial makeover of the 2023 budget as a result of the travails of national currency.
“However, the executive is constitutionally empowered to articulate and present to the National Assembly, a supplementary budget, and this 9th Assembly has always favourably considered such request, as happened in the 2022 budget year.”
However, spokesman of the Budget Office of the Federation, Mr. Afolabi Olajuwon, told a major national daily last week that he was not aware of any plan to present a supplementary budget to the National Assembly.
Meanwhile, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has expressed concern over perceived inconsistency between the parameters or assumptions in the 2023 budget estimations, especially the dollar to naira exchange rate, and the nation’s economic realities.
Addressing a press conference in Lagos, NACCIMA president, John Udeagbala, said these assumptions did not accurately reflect the true economic conditions of the business environment in Nigeria, especially the dollar exchange rate of 435.57 naira per dollar.
“Most businesses in the country thrive on parallel FX market rates currently fluctuating between N820 and N860 to a dollar and considering the fact that there are no guarantees of stability in the exchange rate of the naira to the dollar, as the Nigerian currency continues to depreciate with no measurable checks in sight by the monetary authorities on the spiral fall in value, we are deeply concerned and worried that most manufacturers will continue to purchase dollars at the parallel market in the coming year.
“It is therefore evident that the 2023 budget is not a true reflection of the economic reality of today’s Nigeria. Therefore, the N435.57 exchange rate of naira to the dollar used as parameter for estimating the 2023 budget is not a true reflection of condition of our nation’s economy.”
Also, the Director of Research and Strategy, Chapel Hill Denham, Mr. Tajudeen Ibrahim, noted that the budget estimate was an unrealistic venture considering many factors.
“If we talk about inflation, the reality is that the previous estimate suggests that government will not be able to meet the budget, especially on capital expenditure, considering that the prices of goods and services generally have moved upward,” he said.
Ibrahim believes there is need to adjust the budget in accordance with economic reality, citing its possible effect on the country’s finances.
“The only downside in my view is that we are only raising the expenditure leg, but we have not really addressed the revenue leg because this most likely will imply higher deficit.”
The Founder and Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said: “We have the parameter on inflation but the way the prices of things are going will affect it.
“Then, we have the parameter of exchange rate which is most unrealistic at N435/$ because I am not sure all the agencies of government can get exchange rate at that price.
“Even for most of these contracts, there is always a foreign component. So, the exchange rate is very unrealistic.
“Then oil production at 1.69 is not realistic regardless of the progress made with curbing oil theft, whether we can immediately reach 1.69 is up for doubt. So, some of these parameters need to be reviewed.”
On the deficit problem, Yusuf urged the government to cut down its expenses or else it could further deepen the deficit and result in a vicious cycle of crisis.
“It is either we cut down on the budget itself because our economy is already over stretched as far as our finances are concerned. Raising the supplementary budget will increase the deficit. Already, it is over N10tn, so without a corresponding increasing revenues, the deficits will go up.
“That means our debt borrowing too will increase. And the borrowing component of the budget is very high at about N8.8tn. That is already extremely high. So, all those things have a way of heating up the economy.”
Already, Nigeria’s debt profile is raising sustainability concerns. Data from the Debt Management Office (DMO) showed an inexplicable rise in the nation’s total public debt from N12 trillion inherited by the Buhari Administration in 2015 to the present debt profile of about N42 trillion as of April 2022, an amount representing 83.9 percent of the country’s real Gross Domestic Product (GDP) put at N72.39trillion last year.
Debt servicing exceeded retained revenue by as much as N310 billion in the first four months of 2022, the first time the country’s debt service-to-revenue ratio would hit or exceed 100 percent.
The Director-General of DMO, Mrs. Patience Oniha, recently asked the National Assembly to reduce the debt profile of the country by taking steps to control the deficit in the annual appropriation acts.
Oniha, who made the call at the public hearing on the MTEF by the House of Representatives Committee on Finance, said the budget deficit has been the main contributing factor to Nigeria’s debt profile, stressing that the debt profile will continue to grow as long as lawmakers continue to pass deficit budgets.