A Brief Look at Nigeria’s 2023 Proposed Budget
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This past week, the Nigerian President, Muhammadu Buhari delivered the 2023 budget speech to the National Assembly. The 2023 budget will be the final budget of the administration, themed “the Budget of Fiscal Sustainability and Transition.” ?The budget aims to strengthen the country’s fiscal and macroeconomic stability given the current global challenges of rising inflation and interest rates and to ensure a smooth transition of economic and fiscal responsibility to the next administration as the country heads to the polls in February of 2023.
The key parameters and assumptions of the proposed budget are highlighted in the infographic below. First, let’s examine the budget deficit. This significant gap between projected expenditure and revenue —10.78 trillion Naira — means that the Nigerian government will need to figure out pathways to finance its spending. However, with the current state of the global economy, the Nigerian government is likely going to run into some issues sourcing funds, especially because of its current debt profile. With debt servicing projected to increase by almost 3 trillion (64 percent of total revenue), the Buhari administration will face the uphill challenge of convincing lenders of its ability to raise revenue to service any future liabilities. But as the proposed budget shows, the Nigerian government’s revenue generation capacity is already flailing. Total revenue is expected to decrease about 9 percent from 10.74 trillion in 2022 to 9.73 trillion in 2023. ?
Secondly, debt service and recurrent expenditure still gulp the bulk of government expenditure to the detriment of capital expenditure which is critical to financing growth and development.?Capital expenditure represents just 26 percent of the total expenditure, compared to 30.7 and 40 percent for debt service and recurrent expenditure respectively. Recurrent expenditure, which represents the cost of governance, is set to increase from 6.91 trillion Naira in 2022 to 8.29 trillion Naira in 2023 while capital expenditure is set to decrease from 5.96 trillion Naira to 5.35 trillion Naira. Obviously, it is important to adequately finance governance costs, but privileging recurrent expenditure in an expected contracting economy is worrisome.
Further, while the proposed budget represents an increase in absolute terms from 2022, adjusting for inflation estimated at 17.16 percent (or the current inflation rate of 20.5 percent) shows an actual decline in real terms from the previous fiscal year. In real terms, the 2023 budget estimate will be 130 billion Naira lower than the 2022 budget of 17.13 trillion Naira (or 830 billion Naira lower in the current inflation rate). This decline, particularly in capital expenditure needed for infrastructure and economic development, complicates the Nigerian government’s plans to stabilize the economy and support the strategic objectives of the 2021 to 2025 National Development Plan. It also emphasizes the country’s drop in standing across the continent. As others have noted, the proposed 2023 total is less than half of what peer countries — Egypt and South Africa — enacted in 2022.
There are some minor positives in the proposed budget. The increase in education and health expenditures from 923 billion and 714 billion in 2022 to 1.08 and 1.09 trillion in 2023 respectively is a step in the right direction, given the recent industrial strike by the Academic Staff Union of Nigerian Universities and the Union’s demand for more funding for the education sector as well as the need to build resilience and strengthen health systems in this post-pandemic period. While these modest increases are welcome, especially with rising inflation, they are not sufficient to significantly improve the squalid conditions and staffing shortages in educational and health institutions across the country.
All said, the fiscal authority still needs to roll up its sleeves. A budget of 21 trillion Naira with a revenue estimate of 9.7 trillion Naira which may not be realized means the fiscal authority urgently needs to get creative with raising non-oil revenue given the uncertainties in the oil sector. While the proposed budget benchmarks oil revenue on an estimated production of 1.69 million barrels per day, this month, oil production has slumped to its lowest for the decade at 1.2 million barrels per day due to oil theft. The fiscal authority must act to bridge this gap by finding ways to increase non-oil revenue.
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