The last full year budget of the President Muhammadu Buhari-led administration has been passed and signed into law for implantation. The budget, however, has kicked up some dusts that will linger with Nigerians long after Muhammadu Buhari has left office. Assistant Editor NDUKA CHIEJINA reports
The 2022 budget was conceived to accelerate the recovery of the Nigerian economy and facilitate the completion of critical projects, as well as improve the general living conditions of Nigerians. It is the budget that will herald the 2023 elections and a lot depends on how the budget is implemented
Being the last full year budget of the Buhari administration, the 2022 budget reflects the key execution priorities and strategies of the National Development Plan (NDP) 2021-2025. This budget will also be the first to be implemented based on the objectives of the NDP 2021-2025 and budgetary allocations to Ministries, Departments and Agencies (MDAs) were informed by the core objectives of the NDP 2021 – 2025.
Another interesting feature of the 2022 budget is that the provisions of the finance Act 2021 will play a significant role in the full implementation of the budget particularly the drive to generate revenue to fund the budget.
Minister of Finance, Budget and National Planning Mrs. Zainab Ahmed reiterated that “revenue currently remains our main fiscal challenge. Government remains committed to the effective implementation of the Strategic Revenue Growth Initiatives to improve revenue collection, expenditure management and fiscal sustainability”. What this simply means is that government wants more money. To get that money government says this budget will funded from borrowing.
Government, she said, is optimistic about its ability to finance the budget “considering the positive global oil market outlook and the continuing improvement in our non-oil revenues”. The National Development Plan (NDP) 2021-2025 and the Finance Act 2021 will be major drivers of the budget.
Under the NDP 2021-25, the stands on the tripod of accelerating growth; deepening the initiatives for diversified growth and the fostering of sustainable development.
The plan has an investment size of N348.1trillion that will be funded by the federal and state governments on the one hand and the private sector on the other. For this investment size, the expected financing contribution has been drawn to be made up of: Public Sector N49.7 trillion (subnational will contribute N20.1trillion, FGN N29.6trillion) the Private Sector, will invest N298.3 trillion.
According to Mrs. Ahmed, “the 2022 FGN Budget is the first key public sector contribution to implementing the plan. We shall explore available opportunities for public-private partnerships, concessions as well as climate finance arrangements to fast-track the pace of our infrastructural development”.
The strategic objective of the NDP 2021-2025 is to: establish a strong foundation for a concentric diversified economy, with robust MSME growth, and a more-resilient business environment; build a solid framework and enhance capacities to strengthen security and ensure good governance; invest in critical physical, financial, digital and innovative infrastructure and enable a vibrant, educated and healthy populace.
When these are achieved, the expected impact of the NDP 2021-2025 will be that Nigeria would have achieved improved competitiveness of the economy with a GDP growth of 5 to 6 percent; at least 35 million people lifted out of poverty by 2025, 21 million full-time jobs generated with the young workforce leveraged; and significantly enhanced execution capacity at the national and sub-national levels.
The Finance Act 2021:
The Finance Act 2021 has turned out to be the most controversial of the three Finance Acts (2019-2021) so passed. This particular Finance Act is different because of some of the key changes in the tax laws.
These changes are: Profits of companies engaged in educational activities are no longer exempt from tax under Section 23(1)(c) of Companies Income Tax Act (CITA); the rate of tertiary education tax has been increased from 2 percent of assessable profits to 2.5 percent of assessable profit.
The profits of companies from the exports of goods produced in Upstream, Midstream and Downstream Petroleum operations are no longer exempt from tax under section 23(1) (q) of CITA; Companies engaged in Upstream Petroleum operations will continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have turnover less than N25 million.
Companies engaged in the business of banking, mobile telecommunication, ICT, aviation, maritime and oil and gas, with turnover of N100 million and above, are to pay NASENI tax of 0.25 percent of their profits before tax; Capital gains from disposal of shares and stocks in Nigerian companies, for aggregate proceed amounting to N100 million or more in any 12 consecutive periods, is subject to Capital Gains Tax (CGT) at 10 percent, provided that the proceed is not reinvested within 12 months.
It is now a punishable offence for any company to deny the Federal Inland Revenue Service (FIRS) access to plug in its tax administration software into its systems; It is also now an offence, punishable by fine, imprisonment or both, for RMAFC, EFCC or any agency of government (other than FIRS) or any of their staff or consultant, to demand for books or returns for the purposes of tax, or carry out the function of assessment, collection or enforcement of tax, or pay any portion of tax revenue to any person or into any account, other than the relevant accounts designated by the constitution or relevant laws of the National Assembly.
Any company that claims the reduced 0.25 percent rate under the minimum tax rule in section 33 of CITA but files its tax returns late will be liable to a penalty under section 55, which is equivalent to the benefits or reduction claimed.
There is also the introduction of duty on non-alcoholic, carbonated and sweetened beverages. Excise Duty of N10/litre has been imposed on all non-alcoholic, carbonated and sweetened beverages. This is “to discourage excessive consumption of sugar in beverages which contributes to diabetes, obesity, etc. the new ‘Sugar Tax’ was introduced to raise excise duties and revenues for health related and other critical expenditures (in line with the 2022 Budget’s Priorities)” Ahmed said.
Road to Budget 2022:
The 2022 Appropriation Bill was signed into law to enable its implementation to commence on 1st January 2022. In doing that, President Muhammadu Buhari directed the Executive to submit amendment and/or virement request as soon as National Assembly resumes to mitigate the possible impact of some changes made by the National Assembly to the 2022 Executive Budget proposal.
According to the finance minister, the President was unhappy that members of the National Assembly tampered with some legacy projects he wanted to complete before leaving office. “The effective implementation of the 2022 Budget is very critical for delivering government’s legacy projects, promoting social inclusion and strengthening the resilience of the economy,” she said.
Nigeria posted its fourth consecutive quarterly economic growth in Q3 2021, since the resumption of growth in Q4 2020 and recovery from the deepest economic recession recorded in 2020. Real GDP grew by a record 5.01% in Q2 2021, one of the best recorded by any nation across Sub-Saharan Africa. In fact, the highest growth recorded by the economy since 2014.
Recovery was sustained by a 4.03 percent growth recorded in the Q3 2021, fuelled by the implementation of government’s Economic Sustainability Plan (ESP) and the easing of COVID-19 induced restrictions on economic activities.
Growth in the non-oil sector demonstrated greater resilience recording 5.44% in real terms during the reference quarter (Q3 2021). The growth recorded in the non-oil sector was mainly driven by trade, Information and Communication (Telecommunication). Other drivers include Financial and Insurance (Financial Institutions); Manufacturing (Food, Beverage and Tobacco); Agriculture (Crop Production); and Transportation and Storage (Road Transport).
In real terms, the non-oil sector contributed 92.51 percent to GDP in Q3 2021, higher from the share recorded in the Q3 2020 which was 91.27 percent, Nigeria’s inflation rate has been on the decline dropping in the month of November 2021 to 15.40 percent from a four-year high of 18.17 percent in March 2021. The downward trend is expected to continue through the end of the year.
The National Bureau of Statistics (NBS’) Q4 2020 estimates put unemployment at 33 percent and underemployment rate at 22.84 percent. High unemployment/underemployment rates have implications for poverty incidence in the population.
Ahmed gave an insight into how 2021 budget has fared so far. It must be pointed out that the capital expenditure component of the 2021 budget is still in operation till March, 2022. What it means is that MDAs are at liberty to spend the capital component of the 2021 budget as approved by the National Assembly till March 2022 even though the President has signed the 2022 Appropriation Act into law.
She noted that as at November 2021, Federal Government of Nigeria’s (FGN’s) aggregate revenue was N5.51 trillion, representing 74 percent of what was targeted in the year. This was made up of FGN share of oil revenues N970.3 billion (representing 53 percent performance of the prorated sum in the 2021 budget).
FGN share of non-oil tax revenues totalled N1.62 trillion (118.8 percent over and above the target), Companies Income Tax (CIT) and Value Added Tax (VAT) collections were N718.58 billion and N360.56 billion, representing 115 percent and 165 percent respectively of the prorata targets for the period. Customs collections was N542.11 billion (104 percent of the target) while other revenues amounted to N2.80 trillion, of which FGN Independent revenues was N1.10 trillion while Government Owned Enterprises (GOEs)’ retained revenues was N1.20 trillion.
On the expenditure side, N12.56 trillion (or 94.1 percent) has been spent out of the N13.57 trillion prorata budget. This is inclusive of expenditure estimates of the GOEs but exclusive of Project-tied Loans.
She added that under last year’s expenditure, N4.20 trillion was for debt service and N3.02 trillion for Personnel cost, including Pensions, “as at November 2021, N3.40 trillion had been expended for capital, of this, N2.98 trillion represents 83 percent of the provision for MDAs’ capital, N369.9 billion for Multi-lateral/Bilateral Project-tied loans, and N49.52 billion as GOEs capital expenditure,” she said.
Key Assumptions in 2022 Budget:
Without mincing words, the finance minister stated that the 2022 budget will continue with the reflationary policies of the 2020 and 2021 budgets of the government (that is spending its way out of economic crises). Reflation is a fiscal or monetary policy usually introduced at a period of economic slowdown or contraction by implementing policies like tax cuts, infrastructure spending, increasing the money supply, and lowering interest rates.
The two economic recessions that Nigeria experienced and quickly exited were as a result of the government channeling money to sectors with considerable spending potentials like the social safety net programmes, intervention programmes to fund Micro, Small and Medium Enterprises (MSMEs) and some tax incentives.
According Mrs. Ahmed, reflating the economy helped pull the economy from the brink back on the track of recovery and growth.
Crude oil production: The National Assembly maintained the proposed production volume of 1.88mbpd (including condensates) in 2022. Even though Nigeria’s total production capacity is around 2.5 mbpd, current (year to date), crude production was about 1.4mbpd (slightly short of the OPEC+ production quota), and an additional 300,000bpd of condensates, totalling about 1.6mbpd. The Energy Information Administration (EIA) expects that global oil production would increase to match rising levels of global oil consumption. OPEC crude production was projected to average 28.34 million barrels per day in 2022 higher than 26.94 million barrels per day forecast for 2021.
Crude Oil Price: Government after consulting with the Nigeria National Petroleum Company (NNPC) and other stakeholders is projecting a base oil price of $57/bbl in 2022. According to Ahmed, “this was premised on the averages of forecasts by leading institutions, factors driving market fundamentals, global economic recovery, plans by governments and market sentiments.
However, the National Assembly increased the proposed 2022 oil price benchmark of $57pbl to $62pbl while the World Bank forecasts that crude oil prices will average US$74 pb in 2022 as oil demand strengthens and reaches pre-pandemic levels. The EIA expects Brent prices to average $70.05 per barrel in 2022.
These two assumptions for crude oil production and price have always been controversial. The National Assembly are always rooting for “more” while the Executive have always been cautious by advocating for “less”. The legislators want to spend as much as they see, while the executive have called for measured and calculated spending. However, it is unlikely the executive will push hard against the National Assembly as they are pushing for the projects that were tinkered with in the overall budget. Since they both agree that reflating the economy is the way to growth, both arms will be happy to have so much to spend. One thing is certain, both arms of government are overtly keen on saving proceeds from crude oil sales as the past administration was.
In 2022, Nigeria’s Oil Production is projected to be 1.88 mbpd; at oil price of $62/b; exchange rate of N410.15/$; 13 percent Inflation Rate; nominal consumption of N119.28 trillion; targeted nominal GDP of N184.38 trillion and GDP Growth Rate of 4.20%. An average exchange rate of N410.15/US$ is proposed in 2022 based on the advice of the Central Bank of Nigeria (CBN).
Revenue (Where is the money coming from?):
The projected aggregate revenue available to fund the 2022 budget of N10.74 trillion (inclusive of GOEs) was 32 per cent higher than the 2021 projection of N8.12 trillion. Without the GOEs retained revenue, the government’s revenue was projected at N9.01 trillion.
She disclosed that in order to promote fiscal transparency, accountability and comprehensiveness, allocations to TETFUND and the budgets of 63 GOEs were integrated in the federal government’s 2022 budget proposal.
In aggregate, 35 percent or N3,362,008,316,763 of projected revenues is to come from oil-related sources while 65 per cent is to be earned from non-oil sources.
Non-oil revenue sources include: Dividend N195,716,305,950 (NLNG N187,397,535,000; Bank of Industry N8,318,770,950); Share of Minerals and Mining N2,915,433,293; Share of Non-Oil Taxes N2,132,083,163,179: (CIT N909,302,644,947, VAT N316,691,050,420, Customs N834,116,601,034, Share of Federation Acct. Levies N71,972,866,778); Electronic Money Transfer Levy (formerly called Stamp Duty) N29,367,152,138; Oil Price Royalty N96,943,894,289.
Others are revenue from GOEs N3,306,600,375,927; Independent Revenue N2,216,217,091,075; Draw-down from Special Levies Accounts N300,000,000,000; Signature Bonus/Renewals/Early Renewals N280,855,138,079; Domestic Recoveries + Assets + Fines N26,933,139,822; Grants and Donor Funding N63,376,918,168; Education Tax (TETFUND) N305,998,000,000 all amounting to N10,740,803,831,543.
Expenditure (Where is the Money going to?)
The 2022 aggregate federal government expenditure (inclusive of GOEs and project-tied Loans) was projected to be N17.13 trillion, which is 18 per cent higher than the 2021 Budget.
On the other hand, recurrent (non-debt) spending, amounting to N6.91 trillion, is 40 percent of total expenditure, and 20 percent higher than the 2021 budget. Mrs. Ahmed said the aggregate capital expenditure of N5.96 trillion is 35 percent of total expenditure. This provision is inclusive of capital component of statutory transfers, GOEs capital and project-tied loans expenditures. At N3.61 trillion, debt service is 21 percent of total expenditure and 34 percent of total revenues.
Provision to retire maturing bonds to local contractors/suppliers of N270.71 billion was 1.6 per cent of total expenditure. The minister said the provision was in line with the federal government’s commitment to off-set accumulated arrears of contractual obligations dating back over a decade. “Overall budget deficit is N6.39 trillion for 2022. This represents 3.46 per cent of GDP. Budget deficit is to be financed mainly by borrowings: Domestic sources -N2.57 trillion; foreign sources – N2.57 trillion; multi-lateral/bi-lateral loan drawdowns N1.16 trillion and privatization proceeds – N90.7 billion,” she added.
In 2022, there will be Statutory Transfer of N869,667,187,543; N3,609,241,188,415 for Debt Servicing; N270,711,793,135 for Sinking Fund.
Recurrent (Non-Debt) will gulp N6,909,849,788,736 under this there will be: Personnel Costs (MDAs) N3,494,367,075,514; Personnel Costs (GOEs) N617,724,992,745; Overheads (MDAs) N371,726,148,777; Overheads (GOEs) N451,001,890,322; Pensions, Gratuities and Retirees Benefits N577,862,188,757; Other Service Wide Votes (including GAVI/Immunization) N966,867,592,621; Presidential Amnesty Programme N65,000,000,000 TETFUND – Recurrent N15,299,900,000.
For Special Interventions (Recurrent) N350,000,000,000 has been budgeted in 2022. There is also provision of N5,961,066,005,970 for Aggregate Capital Expenditure which covers; (Capital Supplementation N455,588,000,000; Capital Expenditure in Statutory Transfers N493,662,046,107; Special Intervention Programme (Capital) N7,000,000,000; Amount Available for MDAs Capital Expenditure N2,750,893,902,177; GOEs Capital Expenditure N647,079,937,729; TETFUND Capital Expenditure N290,698,100,000; Grants and Donor Funded Projects N63,376,918,168; Multi-lateral/Bi-lateral Project-tied Loans N1,155,823,207,500; FGN Share of Oil Price Royalty Transferred to NSIA N96,943,894,289. All these will come to a total of N17,126,873,917,692.
Sectoral Allocations in 2022 Budget
Amount provisioned for Federal Ministry of Education and its agencies (Recurrent & Capital expenditure)
Amount provisioned for Universal Basic Education Commission (UBEC)
Transfers to the Tertiary Education Trust Fund (TETFUND) for Infrastructure projects in tertiary institutions
Amount provisioned for Federal Ministry of Health and its agencies (Recurrent & Capital expenditure, including Hazard Allowance)
Gavi/ Immunisation funds, including Counterpart Funding for Donor Supported Programmes, Including Global Fund
The transfer to Basic Healthcare Provision Fund (BHCPF) 1% of CRF
13.4 percent of Budget), amount provisioned for the Military, Police, Intelligence and Para-Military (Recurrent and Capital expenditure)
The amount for provisions for Works and Housing, Power (inclusive of PSRP Provisions), Transport, Water Resources, Aviation
Amount provisioned for Social Investments / Poverty Reduction Programmes.