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2022 Budget: Worries as FG lines up fresh 6.25tr loan to finance deficit

A few days ago, President Muhammadu Buhari presented the 2022 Appropriation Bill to the National Assembly, the sum of N16.39 trillion was proposed. From the said sum, the Federal Government is seeking the approval of the National Assembly to borrow about N6.25tr to fund the deficit in the budget. This development has triggered another round of outcry over the country’s rising debt profile, BABAJIDE OKEOWO writes.

“The level of budget deficit is high, and both the Legislature and the Executive should work to reduce this deficit through the availability of more revenues.

Government should also explore other sources of funding for its projects in order to reduce borrowing”.

Above are excerpts of the reaction of President of the Senate, Ahmed Lawan to the plans of the Federal Government to borrow more money to fund the deficit in the 2022 budget.

He however noted that due to paucity of revenue, the Federal Government has to resort to raising funds from foreign and domestic sources to provide infrastructure across the country.

This,  he described as the reason why the National Assembly approved the FG’s requests for borrowing.

Tagged the ‘Budget of Economic Growth and Sustainability’’ many Nigerians, Financial Experts and stakeholders have raised concerns over the Federal Government’s penchant for incessant borrowing.

According to Dr Muda Yusuf, the CEO of, Centre for the Promotion of Private Enterprise (CPPE), the government should discontinue the accumulation of commercial debt because of sustainability concerns.

Yusuf, a former Director-General of the Lagos Chamber of Commerce and Industry, LCCI urged the FG to align Central Bank of Nigeria, CBN financing of the deficit strictly to the provisions of the CBN Act.

“The major worry around the 2022 budget is that of fiscal sustainability, especially in the context of recent trends of weak revenue performance.  Over the years, revenue performance had consistently fallen significantly below targets.

Debt service would also continue to exert severe pressure on government finances, and CBN financing of the fiscal deficit would likely persist.  This has serious consequences for inflation because of the profound impact on money supply growth,” he disclosed.

He noted that the 2022 revenue outlook may not be different as the 2022 fiscal year would be characterised by a high risk that the deficit would exceed the budgeted threshold, while the debt sustainability challenge would persist.

He explained that the capital budget will be financed entirely from borrowing, saying the Finance Minister already hinted that government revenue could barely cover recurrent expenditure and debt service.

An economist and Research Fellow with the Lagos Business School, Dr Bongo Adi expresses worries that with the current trajectory of the Federal Government, it is rather sooner than later before the country joins the comity of highly indebted poor country status

He lamented that the government internal revenue generation capacity was still low, adding that there had not been a significant increase in tax figures.

He stated that oil price rebound was a tailwind to the government revenue drift, but its force was resisted by low oil production volume.

“Subsidy increases with the oil price and so, oil price with low production volume doesn’t help the government very much. These all point in one direction: borrowing to finance the deficit.

The implication is that the exchange rate would take a tumble. Inflation will ratchet up; debt servicing will worsen and we will return to the highly indebted poor country status” he lamented

According to the Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir, there is an urgent need for the National Assembly to protect the future of the country.

“Debt in itself is not the problem if it is expended to reflate the economy, build infrastructure, facilitate productivity and trade. Using it to finance consumption or recurrent expenditure leaves you in a worse position.

They have a duty to ensure that the future of the country is protected. So, they need to be mindful of what the loan is going to be financing.

They provide oversight functions even in execution. So, care should be exercised in making sure it is done for the right purpose.

If it is applied properly, as our infrastructure needs financing, it might be better off for the economy” he opined.

Unpacking the 2022 budget

Based on the 2022-2024 Medium Term Expenditure Framework and Fiscal Strategy Paper, the working document for the budget, oil price benchmark was pegged at 57 US Dollars per barrel; oil production estimate at 1.88 million barrels, inclusive of Condensates of 300,000 to 400,000 barrels per day); exchange rate at N410.15 per US dollar, and projected Gross Domestic Product, GDP growth rate at 4.2 percent and 13 percent inflation rate.

On fiscal assumptions and parameters, total federally-collectible revenue was estimated at N17.70trillion in 2022 while total federally distributable revenue is estimated at N12.72 trillion, total revenue available to fund the 2022 federal budget is estimated at N10.13trillion, an amount which includes grants and aid of N63.38 billion, as well as the revenues of 63 government-owned enterprises.

Oil revenue was projected at N3.16 trillion, non-oil taxes estimated at N2.13 trillion and FGN independent revenues projected at N1.82 trillion.

Total expenditure of N16.39 trillion proposed for the federal government in 2022, N768.28 is for statutory transfers of N768.28billion, while N6.83 trillion is for non-debt recurrent costs and N4.11 trillion for personnel costs.

Others are N577billion for pensions, gratuities and retirees’ benefits; N792.39 for overheads; N5.35 trillion for capital expenditure, including capital component of statutory transfers; N3.61 trillion for debt service; and N292.71 billion for Sinking Fund to retire certain maturing bonds.

On allocation, defense and security, infrastructure, education and health have been allocated the larger chunk of the budget

From the allocation, defence and security got N2.41 trillion (15%); infrastructure N1.45 trillion (8.9%); education NN1.29 trillion (7.9%); health N820 billion (5%) and Social Development and Poverty Eradication N863 billion (5.3%) of the entire allocation.

Akabueze defends size of budget, says it is low

Meanwhile, the Director-General, Budget Office of the Federation, Ben Akabueze, has said that the 2022 budget presented to the Joint National Assembly is low.

“Well first of all, I think we need to understand that as large as the size of this budget might seem to Nigerians, and as you say it’s the largest so far, the truth of the matter is that our budget is still way lower than it should be. The problem of Nigeria isn’t that, I’m talking about the government now, we’re spending too much money, it’s that we’re actually spending too little.

“If we look at, I mean there’s a global measure for this, you know, which is called a public expenditure to GDP ratio. For Nigeria, the public expenditure to GDP ratio is still in the order of 12 per cent. The average for Africa is 22 per cent, some countries in Africa have about 30 per cent, I mean in the developed countries, the ratio is, you know, typically over 40 percent. And so, you know our budgets

FG defends borrowing

President Buhari and the Minister of Finance, Budget and National Planning, Zainab Ahmed has repeatedly assured that though Nigerians have the right to be concerned about the nation’s additional loans, still, the country’s debts remain at a sustainable level.

According to the president, despite revenue challenges, the country has consistently met her debt service commitments.

“Some have expressed concerns over our resort to borrowing to finance our fiscal gaps. They are right to be concerned.

However, we believe that the debt level of the Federal Government is still within sustainable limits” he said.

Similarly, Zainab has again defended recent borrowings by the Federal Government, insisting they were instrumental to the country’s exit from recessions.

“Borrowings are essential to enable us to deploy necessary capital expenditure and invest in human capital development,” she maintained.

According to her, with the country’s rising levels of insecurity, the government had to resort to borrowing.

“To compound matters, the country has technically been at war, with the pervasive security challenges across the nation,” the minister added.

“This has necessitated massive expenditures on security equipment and operations, contributing to the fiscal deficit; Defense and Security sector accounts for 22% of the 2022 budget!”

She further allayed fears over Nigeria’s debts, insisting the “debt level of the Federal Government is still within sustainable limits”.