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House of Reps Passes 2022 Budget

The House of Representatives has  passed the 2022 appropriation bill, raising the total estimates of the Federal Government’s budget from the proposed N16.39trn to over N17trn. The House also increased the oil benchmark to US$62 compared with the US$57 that was proposed by the executive, while the exchange rate was retained at N410.15/US$. They noted that the additional revenue increase would be allocated to the agencies that came forward with additional financial reports which were not provided for in the budget, such as the Ministry of Works and Housing and the Independent National Electoral Commission for the 2023 general elections. The highly ambitious 2022 budget is to promote economic diversification, intensify infrastructure investments, alleviate poverty, and achieve social inclusion.

We are surprised that the house of representatives increased the benchmark oil price despite uncertainty in the global oil market due to the omicron variant of COVID-19. Previously, the Federal Government planned to spend N16.4tn, to be financed through an anticipated revenue of N10.1tn, thus creating a budget deficit of N6.3tn in 2022. The budget deficit is expected to be financed majorly by borrowings of N5.0tn (local; N2.5tn and foreign; N2.5tn), multi-lateral/bi-lateral loans of N1.2tn and privatisation proceeds of N0.9tn. Furthermore, the expenditure estimate included capital expenditure of N5.4tn, recurrent expenditure of N6.8tn, sinking fund of N0.3tn, the recurrent component of statutory transfer of N0.3tn, and debt service cost of N3.6tn. On the revenue front, projected revenue sources include oil revenue (N3.5tn), taxes (N2.1tn), independent revenue (N1.8tn), retained GOE (N1.7tn), and others (N0.9tn).

Nigeria has, in recent years, adopted an expansionary fiscal stance without specific nondebt revenue-generating goals. Most times, projected fiscal deficits exceed projected shortfalls. Despite the conservative oil benchmark price of US$40/bbl. and the actual crude oil price rising even beyond the pre-pandemic levels, the government only achieved 66% of the target revenue as of July 2021, as highlighted in the budget presentation speech. Although this was partly attributed to the OPEC+ production cuts agreement. Again, a successful resolution of the VAT collection dispute between the federal government and states, in favour of the states, will likely affect the tax revenue target of N2.1tn.

Another concerning aspect remains the budget deficit. Nigeria’s total public debt came to N38.0tn at the end of September 2021. The government claims that total borrowings as a percentage of GDP are still within acceptable limits at 35%, which remains significantly below the Sub-Saharan Africa level of 58% and below the 40% limit set by the Debt Management Office. Meanwhile, interest payments continue to absorb a large share of federal government revenues, making the otherwise low debt-to-GDP ratio highly vulnerable to shocks. The total debt service to revenue ratio was estimated at c.73% in October.

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