On Thursday, July 21, 2022, the Minister of Finance, Budget and National Planning presented a consultation document for the Medium-Term Expenditure Framework/Fiscal Strategy 2023-2025. This disclosure reviews the highlights of the presentation and the logical next steps for the development, economy and well-being of the citizens of Nigeria.
The consultation began with a review of economic and budgetary performance for the period from January to April 2022 and, in some cases, the first half of the year 2022. Oil production averaged 1.32 million barrels per day (mbpd) in April compared to the 1.60 mbpd projected in the budget. This is exclusive to production for payment of call arrears in cash. It will be recalled that Nigeria’s Organization of the Petroleum Exporting Countries quota is 1.8 mbpd. The price of oil to April averaged $103.60 per barrel (bp) compared to the $73bp projected. The official exchange rate was 415.19 naira to $1 against a projection of 410.15 naira to $1. the end of the first quarter.
Oil production is below the projection in the budget and our allocated OPEC quota. The lame excuse for low oil production is the high incidence of oil theft and pipeline vandalism. However, the consultation document did not explain to Nigerians that it was FGN’s mismanagement of the oil sector that led to the reduction in the amount of oil produced. At the end of 2015, the year the Buhari administration took office, Nigeria’s oil output was 2.16 mbpd, a small shortfall from the 2.28 mbpd projected in the 2015 federal budget.
Industrial-scale oil theft has been estimated at between 200,000 and 300,000 bpd. 280,000 bpd, being the difference between the projected 1.6 mbpd and the actual production of 1.32 mbpd, is a daily loss of 29 million dollars. For the 181 days of the first six months of 2022, this amounts to $5,249 million, being the total market value before the deduction of costs and the distribution between the oil producing companies and the FGN based on the respective production agreements. . This development calls into question the mandate execution of several security agencies, including the Navy, the National Maritime Administration and Security Agency (NIMASA), the Nigerian Security and Civil Defense Corps (NSCDC), the Army, the Nigerian Police and security companies contracted by the Nigerian National Petroleum Corporation. and oil producing companies.
The oil price of $103.60bp compared to the budgeted $73bp is an additional $30.6bp. If Nigeria had reached the projected production of 1.60 mbpd, it would be an additional income of $8,568 million per day and $1,551 million for the first 181 days of the year. The rise in oil prices offered Nigeria a wonderful opportunity to finance the proposed deficit in the 2022 budget without borrowing or selling assets. But this opportunity was lost.
The exchange rate report is simply a matter of the Central Bank of Nigeria living in denial and presenting Nigerians with alternative facts that are not based on the reality and lived experience of millions of Nigerians. Since the CBN is by law the authority in charge of administering the exchange rate regime, it cannot continue to run the regime through a different fixing of the real value of the naira. How can it be stated that the naira that is exchanged on the streets of Nigeria above N620 per $1 on the date of submission of the consultation document has a value of N415.19 per $1? Even if there was a band or a slight difference between the official and street value of the naira, a 33% valuation difference is such a huge chasm. The inflation and growth indicators did not reach the budgeted goals. The current inflation rate of 18.60% exceeds the budget proposal by 249 basis points. The real growth figure of 3.11% is below the projection of 3.55%.
FGN’s retained earnings at the end of April 2022, including Government Owned Enterprises (GOE) earnings, were N1,630trn and, excluding GOE, reduced to N1,493trn against the pro rata sum of N3. 32trn. The first is 49% of the prorated amount while the second is 44% of the prorated amount. Essentially, this is suboptimal performance.
Prorated spending at the end of April of the N17.32 trillion federal budget should be N5.77 trillion. The actual spend of N4.72trn is 82% of the prorated spend. However, considering the actual income of N1,630trn, an additional unearned amount of N3,09trn was spent, which is the deficit for the period. Actual revenue is only 53% of N3.09trn shortfall financing. Actual revenue as a percentage of total spending is a measly 35%. Now to the breakdown of spending, N1.94trn which represents 41% of spending was allocated to debt service; N1.26trn, with 27% allocated to personnel; capital spending took N773bn, being 16% of spending, while unreported spending of N726.3bn took 15% of total spending.
The explanation for the above income and expense figures is that we spend more than we earn to service the debt as we borrow an additional N310bn to complete the debt service. Indebtedness to finance debt service was never contemplated in the Fiscal Responsibility Law, the enabling framework law for debt management. It only authorized loans for capital expenditures and human development. Our combined headcount and capital expenditure is only 2% more than debt service. Essentially, FGN is bankrupt, insolvent and unable to pay its debts or meet its overdue obligations. It is simply living on borrowed time and under the shield of sovereign immunity.
In a private sector company/team recklessly managed or recklessly traded as managers in the Nigerian economy have done, directors and managers would have been removed by creditors and an interim liquidator or board and managers appointed to recover debts/assets . for creditors or help the business get back on track and profitable. The directors and managers are the elected officials and their appointees who have managed the economic, fiscal, oil, etc. regimes of Nigeria at the highest level. Yes, we have an Oil Minister who has overseen for more than seven years the deterioration and rotting of the sector to the point where we cannot meet our budgeted oil production, which is less than our OPEC quota. As for the silly excuse of oil theft and vandalism, the same Oil Minister is also the Commander-in-Chief of the entire security architecture of the country.
Furthermore, those who continued to assure us that we do not have a debt challenge but an income challenge, even as the facts have crystallized that we are headed for insolvency, should explain to Nigerians how they deliberately got us into this predicament. Assuming without admitting that it was a revenue challenge, nothing substantial was done to increase revenue.
Nigerians must act now that we have hit rock bottom; ask for new managers of the economy; to ask those currently in charge to step aside. If we don’t act now, by the time last-resort economic lenders, reformers, and restructurers in multilateral institutions like the IMF/World Bank step in to restructure our economy, the pills may be too hard to swallow. Surely, we are well on our way to letting them in if we don’t start the reform process at our own pace and time.