Nigeria to exceed debt limit in 2023 as FG seeks N11 Billion in new loans

by Amos Kalu

The Nigeria Minister of Finance and National Planning, Zainab Ahmed has said that the federal government will borrow more than N11 trillion and sell domestic assets to finance the budget deficit in 2023.

She also said that the government’s budget deficit is expected to exceed N12.42 trillion if it maintains the oil subsidy throughout the 2023 fiscal cycle.

Ms. Ahmed revealed this on Monday while appearing before the House Finance Committee to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).

Explaining two budget deficit scenarios to the committee, the minister said the first option involves withholding the oil subsidy for the entire 2023 fiscal year.

According to her, in the first scenario, the deficit is expected to be 12.41 trillion Naira in 2023, against the budgeted 7.35 trillion Naira in 2022, which represents 196% of total revenue or 5 .50% of the estimated GDP. In this option, she added, the government would spend N6.72 billion on subsidies.

Ms. Ahmed said that the second option involves keeping the subsidy until June 2023 and that this scenario will bring the deficit to N11.30 trillion, which is 5.01 percent of the estimated GDP. Under this option, the PMS subsidy is projected to gobble up to N3.3 billion.

She noted that the first option is likely not achievable based on current trends, while the second option would require a more stringent application of the performance management framework for government-owned companies that would significantly increase the operating surplus in 2023.

The projected deficit under the second option, the minister said, is expected to be financed through new loans from local and international sources. This will include a total of N9.32 billion in new loans, comprising N7.4 billion from domestic sources and N1.8 billion from foreign sources. The government is expected to generate N206.1 billion from privatization proceeds and N1.7 billion in loans linked to multilateral projects.

The federal government would spend N18.6 billion daily on PMS.

Both proposals have budget deficits well above the threshold stipulated in the Fiscal Responsibility Law.

FILE: President of the Senate and President of the National Assembly, Ahmad Ibrahim Lawan; Speaker of the House of Representatives Rt (Hon.) Femi Gbajabiamila and President Muhammadu Buhari during the President’s presentation of the 2020 budget at the National Assembly on Tuesday, October 8, 2019.

According to the current Law, the deficit must not exceed 3 percent of GDP. However, the law foresees that the president crosses the threshold with the approval of the National Assembly.

Article 12 (1 and 2) of the Fiscal Responsibility Law states: “The estimate of:

1). The aggregate expenses and the aggregate amount allocated by the National Assembly for each financial year may not exceed the estimated aggregate revenues plus a deficit, not to exceed three percent of the estimated Gross Domestic Product or any sustainable percentage determined by the National Assembly. Assembly of each exercise.

two). Total expenditure for a financial year may exceed the cap imposed by the provisions of subsection (1) of this section if, in the opinion of the President, there is a clear and present threat to the national security or sovereignty of the Federal Republic of Nigeria.

The government is projecting N19.76 billion as total spending under option two, with projected daily oil production set at 1.69 million barrels per day at $70 per barrel. The exchange rate has been set at N435.57 per dollar and inflation at 17.16 percent.

Ms. Ahmed stated that the challenges of crude oil production and the deduction of PMS subsidies by NNPC Limited constitute a significant threat to the achievement of our goals, as seen in the 2022 performance to April.

He noted that the draft MTEF/FSP was prepared in the context of continuing global challenges brought about by the lingering effects of the COVID-19 pandemic, as well as rising food and fuel prices due to the war between Russia and Ukraine.

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