…NNPC did not remit revenue for eight months because of subsidy
Nigerians have to brace up for hard times as the Federal Government says its debt servicing has surpassed revenues that are accruing to it.
The implications of this are that many Nigerians are going to lose their jobs, there would be increased hunger in the land, salaries would be delayed thereby creating tension in the land. There would also be an increase in anti-social activities.
These are in addition to the already bad economic situation which has led to increased prices of foods, commodities, diesel, petrol and transport fares.
This is the result of bad government policies, especially the subsidy being paid on petrol by the government which it was advised against by reasonable schools of thought, but it has refused to listen to.
The government has been over time advised to deregulate the downstream sector of the petroleum industry which is the main source of waste in the economy
Giving the analysis of the debt payment, the minister of Finance, Zainab Ahmed, stated that the Federal Government debt servicing exceeded retained revenue by as much as N310 billion in the first four months of 2022. This is the first time the country’s debt service to revenue ratio would hit or exceed 100 percent.
The document which was released at the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF and FSP) Public Consultation in Abuja, Thursday, detailed the fiscal position of the first quarter (January to April) which showed that the Federal Government spent N1.93 trillion on debt servicing, which was about 20 percent higher than the retained revenue pegged at N1.63 trillion for the same period.
Giving updates on the budget performance, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said urgent action is required to address revenue underperformance and expenditure efficiency at national and sub-national levels.
The retained revenue was also about 51 per cent short of the prorated target for the four months as per the 2022 Appropriation Act, which target was N3.32 trillion.
The actual total spending for the period was also less than the estimated prorated spending, but with a far smaller margin than in the case of revenue performance.
The government spent N4.72 trillion, which was about four-fifth of the N5.77 trillion spending estimate for the period. The expenditure was about 190 per cent higher than the earned revenue.
The data also showed that debt servicing alone took as much as 41 percent of the total spending, while personnel cost (including pensions) was approximately 27 per cent or N1.26 trillion, leaving a meagre N773.6 billion for capital expenditure (CAPEX) or 16 per cent.
The amount incurred on debt servicing exceeded expert projections and previous records. Last year’s debt servicing to revenue ratio was 96 per cent while Agusto & Co projected that the figure could exceed 80 per cent this year.
The continuous rise in energy costs in the global market have pushed subsidy on Premium Motor Spirit (PMS) for 2023 to an estimated N6.72 trillion, Ahmed said during the MTEF and FSP presentation.
She disclosed that petrol subsidy payments grew by 349.42 per cent from N350 billion in 2019 to N1.573 trillion in 2021, propelled by the rising price of crude oil in the international market and the falling value of the naira.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) blamed the current price instability of petroleum products on the global energy crisis.
The Authority’s Chief Executive, Farouk Ahmed, explained that the high price of diesel in the global market has made operating service stations very difficult.
He explained that an average service station uses 100 litres of diesel to operate per day, which comes to about N100,000 daily, while depot owners also use diesel to operate their depot, meaning they spend more money to remain in business.
He added: “This goes for vessels used for shipping of PMS, which has moved from $18,000 per day to $38,000 for Lagos area and $50,000 to Calabar. The rising energy prices have led to higher costs of operations globally. Nigeria is not an island. Whatever happens in the global arena also affects Nigeria.”
Recall that the cost of subsidising PMS in 2020 was N450 billion, which grew to N4.19 trillion in the 2022 budget.
Ahmed stated that the government has projected fiscal outcomes in the medium term (2023 to 2025) under two scenarios based on the underlying budget parameters/assumptions.
She gave the breakdown thus: “The subsidy on PMS is estimated at N6.72 trillion for the full year 2023”. This amount, she said, “will remain and be fully provided for by the Nigerian National Petroleum Corporation (NNPC) Limited on behalf of the Federation. The second scenario is that PMS subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for.”
However, the Minister was quick to add that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.
She hinted that there will be tighter enforcement of the performance management framework for Government Owned Enterprises (GOEs) that will significantly increase operating surplus/dividend remittances in 2023.
On the implications that the transition of the NNPC Limited will have on subsidy and what it will mean to the 36 states, the minister of Finance said: “The new arrangement has indicated that NNPC will not be contributing monthly to the Federation account as they used to in the past.
On how the Federal Government would get the new NNPC Limited to make its due remittances to the Federation Account, she said the government was in talks with the oil company on the modalities for a convenient model for it to appropriately remit government revenues.
She added that NNPC has not remitted revenue into the Federation Account for eight months, because it has been paying subsidies on behalf of the Federal Government.
From her explanations, it was not totally gloomy for the governors. Her words: “From now onwards, NNPC Limited will be paying royalties, dividends and taxes. So, while the revenue might not be monthly, we will work out an arrangement on how this will be paid. And it is possible to work out an arrangement whether the payments could be monthly or quarterly.”
On his part, the Minister of State for Budget and National Planning, Clem Agba, said: “I think that the time to remove the subsidy was yesterday. We are only eating away at our future and that is what some people call a consumption economy. It is difficult to understand a situation where citizens say that they want an omelette and then when the government wants to break eggs so that they can produce, they say don’t break the eggs. So, it’s a decision that Nigerians will have to take because if you look at scenario one, it means that we will not have any capital expenditure in 2023.
“All those who agree with us in-house that we should remove the subsidy – all the political parties, governors and labour unions – when they come out to the public, they will say, ‘don’t remove the subsidy’ but behind the scene when they see the books they understand that it has to be done, but maybe out of lack of patriotism or to promote themselves or their parties, they say it’s the government that wants to punish the people.
“So, Nigerians really need to decide, because if we must have a future, the subsidy has to go now,” he said.
The Minister’s position goes completely against President Buhari’s stance on petrol subsidy removal.
Last month, the President while defending the government’s decision to keep paying fuel subsidies in a response to Bloomberg, said the effects of removing fuel subsidies would be too harsh on the Nigerian people.
He said the government is working on boosting local capacity to stem the inflationary pressures that are likely going to be triggered by the removal of subsidies.
“Most western countries are today implementing fuel subsidies. Why would we remove ours now? What is good for the goose is good for the gander!” he said.
THE MTEF and FSP 2023 to 2025 project FG’s revenue at N6.34 trillion, out of which only N373.17 billion or 5.9 per cent comes from oil-related sources. The balance of N5.97 trillion is to be earned from non-oil sources.
In addition to subsidy reform, scenario two assumes an aggressive implementation of cost-to-income limits of GOEs, with these, the 2023 FG’s revenue is projected at N8.46 trillion (15.1 per cent or N1.51 trillion less than the 2022 Budget) but N2.12 trillion more than scenario one.
Of this, N1.99 trillion or 23.6 per cent, is projected to come from oil-related sources, while the balance is to be earned from non-oil sources.
The FG’s 2023 aggregate expenditure is estimated at N16.98 trillion, which is N337.05 billion (1.9 per cent) lower than the 2022 budget. The sums of N20.29 trillion and N22.73 trillion are projected to be spent by the FGN in 2024 and 2025, respectively.
Under scenario two, the FGN’s 2023 aggregate expenditure is estimated at N17.99 trillion, N669.82 billion (3.9 per cent) higher than 2022 (inclusive of GOEs).
The 2023 – 2025 MTFF projects the inflation rate to average 17.16 per cent in 2023, up from the revised average of 16.11 per cent for 2022.
“Upward pressure on prices is expected to be driven by the current and lag effect of the global price surge due to the Russian-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation, as well as other supply-side constraints. The medium-term nominal consumption is projected at N121.93 trillion, N123.69 trillion and N125.45 trillion for 2023, 2024 and 2025, respectively,” it said.