In his government’s final budget, Mr Buhari sets out a record N10.78 trillion deficit, more than N7.35 trillion in 2022 and above the mark prescribed by the Fiscal Responsibility Act.
The Nigerian government has announced plans to borrow N8.80 trillion to finance its budget deficit in 2023 in a move that is yet again a breach of the Fiscal Responsibility Act.
President Muhammadu Buhari made this disclosure while presenting the 2023 budget to the national assembly last Friday in Abuja.
The president said the new borrowing will be 4.78% of estimated Gross Domestic Product (GDP), higher than the 3 percent prescribed by the Fiscal Responsibility Act.
The Act says “aggregate expenditure and the aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three per cent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly for each financial year.”
The law only allows a violation if the nation faces national security threats, an allowance the president has again cited for his government’s decision.
Mr Buhari said total fiscal operations of the federal government would result in a deficit of N10.78 trillion. In effect, the deficit spending for 2023 is higher than the deficit recorded in 2022, which stood at N7.35 trillion.
“As envisaged by the law, we need to exceed this threshold considering the need to continue to tackle the existential security challenges facing the country,” the president argued.
“We plan to finance the deficit mainly by new borrowings totalling 8.80 trillion Naira, 206.18 billion Naira from Privatization Proceeds and 1.77 trillion Naira drawdowns on bilateral/multilateral loans secured for specific development projects/programmes.
“Over time, we have resorted to borrowing to finance our fiscal gaps. We have been using loans to finance critical development projects and programmes aimed at further improving our economic environment and enhancing the delivery of public services to our people.”
Record of Breaches
Last year, the Nigerian government invoked “national security” to shoot up the nation’s 2022 budget deficit. Speaking in July 2021, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced that the nation’s budget deficit would rise to N5.62 trillion in 2022, up from N5.60 trillion in 2021.
The deficit at the time represented 3.05 per cent of the estimated GDP, which was slightly above the 3 per cent threshold spelt out in the Fiscal Responsibility Act.
“The FRA empowers Mr. President to exceed the threshold if in his opinion, the nation faces national security threats. And it is our opinion, and FEC agreed that we can exceed it,” Mrs Ahmed had argued.
As it did in 2021, the government has again argued that the socio-economic situations demand that it takes drastic steps to address the nation’s challenges.
“As you are aware, we have witnessed two economic recessions within the period of this Administration,” Mr Buhari said on Friday.
“A direct result of this is the significant decline in our revenue generating capacity. In both cases, we had to spend our way out of recession, resulting in higher public debt and debt service. It is unlikely that our recovery from each of the two recessions would have been as fast without the sustained government expenditure funded by debt.”
In recent years, Nigeria’s deficit financing has been a source of worry for Nigerian policy experts and international ratings agencies.
In a publication in January 2021, Fitch Ratings, a global provider of credit ratings, said Nigeria’s repeated recourse to its Ways and Means facility with the central bank raises risks to macroeconomic stability. In light of the nation’s weak institutional safeguards, it said sustained use of direct monetary financing to bridge deficit highlights weaknesses in public finance management.
The rating agency said monetary financing of the fiscal deficit raises challenges to monetary policy implementation, because tight management of domestic liquidity is a key tool under the CBN’s policy of prioritising the stability of the naira. The practice could complicate the CBN’s efforts to bring inflation back under control, as high inflation in Nigeria is a credit weakness, it said.
In August, PREMIUM TIMES exclusively reported how Nigerian governors urged the federal government to immediately put an end to the Central Bank of Nigeria’s financing of the government’s budgetary expenditures as part of a coordinated effort to rescue the nation from fiscal collapse.
The governors, who made the proposal at a meeting with President Muhammadu Buhari in July, also urged the government to convert the N19 trillion Ways and Means outstanding loans obtained from the CBN into a 100-year bond with a proposed interest of one per cent.