â¢ Buhari obtains Senate approval for foreign loan application N2.3tr
â¢ The Senate approves the supplementary budget N982b, increases the proposal of N86.9b
â¢ FG will finance the N5.62tr deficit in the 2022 budget with loans
â¢ Nigeria on the debt precipice, spent 1.8 tr of N on debt service between January and May 2021
â¢ The government records a debt service / income ratio of 98%
Following the Senate’s approval yesterday of a new foreign loan request of $ 6.18 billion by the executive, there are indications that Nigeria’s documented public debt could exceed 35.5 trillion naira before the end of the year.
The Senate yesterday approved a new request for a loan of 6.18 billion dollars (which amounts to 2.53 billion naira using the exchange rate of 410 naira / $) by President Muhammadu Buhari to finance a part of the 2021 budget deficit. The deficit stands at 5.6 trillion naira, or 41% of the 13 trillion naira budget. The deficit is above the 3% threshold established by the 2007 Fiscal Responsibility Act.
The country’s total stock of public debt stood at 33.1 trillion naira at the end of the first quarter of March, although the Minister of Finance, Budget and National Planning, Zainab Ahmed, at recent meetings of the African Development Bank (AfDB) held in Ghana, said the debts of some states had not been included in official figures.
In addition, the Federal Government’s (W&M) Way and Means Advances with the Central Bank of Nigeria (CBN) have been estimated at $ 25 billion (N10.3 trillion), which, according to the Bureau of debt management (DMO), would be converted into a long-term instrument.
This is in addition to President Muhammadu Buhari’s approval at the Federal Executive Council (FEC) yesterday to authorize funding for the 2022-2024 Medium Term Expenditure Framework and Budget Strategy Paper (MTEF & FSP) of a budget deficit of 5.6 trillion naira through various loans.
During the three years covered by the MTEF / FSP, the federal government plans to take out new loans in the amount of approximately N15 trillion – an amount spread accordingly: N4,893 trillion (2022), 4.75 trillion naira (2023) and 5,356 trillion naira 2024). Estimated loans are split equally between domestic and external sources.
The loan estimates are 60 percent or 5.6 trillion naira higher than the total of 9.4 trillion naira allocated to investment projects over the three years. The estimated capital vote for next year is 3.262 billion naira against 3.162 billion naira proposed for 2023 and 3.155 billion naira planned for 2024.
The amount approved in this year’s budget, which is N4.125 billion, is higher than envisaged for any of the three fiscal years starting in 2022, even if the government wants to increase total spending.
The budget for next year, although adjusted for economic realities prior to presentation, is estimated at 13,982 billion naira. It will rise to N15.458 billion in 2023, while total spending will rise to N16.772 billion in 2024.
The proposed new borrowing represents about a third of the total of N46.3 trillion that the government intends to spend between 2022 and 2024, while investment projects will only represent a fifth of spending estimates.
Yesterday, lawmakers approved the issuance of $ 3 billion but no more than $ 6.18 Eurobonds for the implementation of the financing of part of the deficit contained in the budget law approved for 2021. The Senate said the amount authorized above could come from several sources, including the international capital market, multilateral or bilateral sources.
The loan, once obtained, would increase the stock of national debt and increase the debt service burden. In the first quarter, the federal government spent 1.02 trillion naira on domestic and foreign debt service. The amount, which appears in the DMO’s debt service payment report for the first quarter of 2021, represents a 35.7% year-over-year increase from the 753.7 billion naira spent in the first quarter of 2020.
Debt servicing is expected to consume 39% of the country’s income this year. With more than N1 trillion spent in just three months, experts say the amount of debt service to income would exceed the official estimate.
Nigeria’s debt sustainability, like other African countries, has been discussed in depth in recent weeks with the Director General of the World Trade Organization (WTO), Dr Ngozi Okonjo-Iweala, and AfDB President Dr Akinwumi Adesina, expressing fears that the continent will fall back into the debt trap.
Yesterday’s Senate resolution followed approval from its committee on local and foreign loans presented by President Clifford Ordia. The Committee recommended that the Senate approve Buhari’s request for the issuance of $ 3,000,000,000 but not more than $ 6,183,081,643.40 of Eurobonds in the international capital market. The external loan of N 2,343,387,942,848, according to the panel, should be intended to finance part of the deficit authorized in the 2021 finance law.
âWhat we are about to spend is not a new borrowing, it was approved in the 2021 budget,â he said.
After the approval, Senate Speaker Ahmad Lawan said the National Assembly must ensure that there is no frivolous spending on the part of the executive.
President Buhari in May asked the National Assembly to approve the loan. The president said the loan would be used to finance “projects in priority sectors of the economy, namely: electricity, transport, agriculture and rural development, education, health, the supply of counterpart funds for multilateral and bilateral projects, defense and water resources â.
In April of this year, the National Assembly approved requests for loans of 1.5 billion dollars and 995 million euros. Responding to questions from reporters two weeks ago after a closed-door meeting with President Buhari, Speaker of the Senate, Lawan said Nigeria is a poor nation with no choice but to borrow to finance infrastructure development.
The Federation’s Budget Office also admitted that the country is poor and only potentially rich, which is why the country must continue to borrow to emerge from the recession.
According to the Director General of the BOF, Ben Akabueze, âwe are a potentially rich country, but the reality today is that we are a poor country because looking at the definition of poverty, when the resources you have do not you just can’t meet your needs, you are poor. “
The Senate also yesterday adopted a supplementary budget of 982 billion naira for fiscal year 2021. The approved sum represents an upward revision of 86.9 billion naira from the original amount of 895.842 billion naira transmitted to the government. National Assembly by President Buhari two weeks ago.
The approval followed consideration of the Senate Appropriations Committee report, which was presented by the President, Barau Jibrin. The adoption of the 2021 amending finance bill follows the examination of a report by the appropriations committee in plenary session.
Consequently, out of the total sum of 982,729,695,343 billion naira spent, 123,332,174.164 billion naira is intended for recurrent expenditure (excluding debt); and 859,397,521,179 billion naira as a contribution to the Development Fund for capital expenditure.
Appropriation committee chair Jibrin explained that the $ 45.63 billion required for the COVID-19 vaccination program would come from the existing World Bank loan as well as other grants.
The lawmaker revealed that the balance of 722.40 billion naira, which is intended for capital expenditure for the purchase of additional safety equipment and capital supplement, would come from new borrowing.
AFTER yesterday’s FEC meeting, Minister of Finance, Budget and National Planning Zainab Ahmed said his ministry presented a memo with projected revenues in 2022 of 6.54 trillion naira. and 2.62 trillion naira payable to the Federation account and VAT respectively.
She said, âWe have presented to the federal government the projected revenues for 2022 to 2024. Specifically for 2022, the revenues we forecast are respectively 6.54 trillion naira and 2.62 trillion naira to be charged to the account of the Federation on VAT. These revenues are expected to increase in 2023 to reach 9.15 trillion naira.
The total expenditure that we expect, we have projected and approved by the Council is an aggregate expenditure of N13.98 trillion. This includes 1.1 trillion naira of expenditure on state-owned enterprises as well as grants and donor-funded projects amounting to 62.24 billion naira.
âThis means that this budget is only 3% higher than the 2021 budget in terms of volume of expenditure. We also reported the budget deficit and expenditure funding items to council. The budget deficit forecast for 2022 is 5.62 trillion naira, compared to 5.60 trillion naira in 2021. This amount represents 3.05% of estimated GDP, which is slightly above the threshold of 3% specified in the responsibility. budgetary. Act.
âThe FRA empowers the President to exceed the threshold. In his view, the nation faces threats to national security. And it is our opinion on the agreed fact that we can go beyond. The deficit will be financed by new foreign and domestic borrowing, both domestic and foreign, in the amount of 4.89 trillion naira from the proceeds of the privatization of 90.73 billion naira and levies on loans linked to the existing projects of 635 billion naira.
âI just want to say that the debt-to-revenue ratio in the report is 43%, which of course we know Nigerians are all concerned about the actual debt-to-revenue ratio. In 2019, it was 58%. In 2020, the ratio reached 85%. So 2022 is a significant improvement over the 22 inch.
Already, the 2021 budget execution report showed that the federal government had spent a total of 1.8 trillion naira on debt service in the first five months of the year, which is about 98% of the total. income generated during the same period. A review of the data found that the total aggregate revenue generated by the federal government between January and May 2021 was 1.84 trillion naira, which represents a shortfall of 1.48 trillion naira compared to expected income of 3.32 trillion naira.
This means that the increase in the federal government’s debt service charges, despite low government revenues, indicates that the country is spending almost all of its income on debt service, opening up the country to more loans. the future, especially in the area of ââcapital project financing.
The recent positive recovery in the global oil market has not resulted in substantial growth in government revenues due to the reduction in Nigeria’s production quota. However, Nigeria hopes that OPEC +, in its current meetings, will agree on easing the reduction in oil production levels.