ANALYSIS OF THE 2022-2021 MEDIUM

ANALYSIS OF THE 2022-2024 MEDIUM TERM EXPENDITURE FRAMEWORK AND

FISCAL STRATEGY PAPER

CENTRE FOR SOCIAL JUSTICE (Mainstreaming Social Justice in Public Life)

Centre for Social Justice

CSJ


CSJ



CENTRE FOR SOCIAL JUSTICE (Mainstreaming Social Justice in Public Life)


CSJ



CENTRE FOR SOCIAL JUSTICE

Researched and Written

By

Eze Onyekpere Esq (With the Support of Fidelis Onyejegbu

and Martins Ezukosi)

Analysis of the 2022 - 2024 MTEF ii | Page

First Published in August 2021

By


Plot 836, Block 1, Emmanuel Aguna Crescent, Off Idris Ibrahim

Crescent, Off Obafemi Awolowo Way, Jabi

P.O. Box 11418 Garki, Abuja.

Website: www.csj-ng.org

Blog: csj-blog.org

Twitter: @censoj

Facebook: Centre for Social Justice, Nigeria

[email protected]

Analysis of the 2022 - 2024 MTEF iii | Page

TABLE OF CONTENTS

Abbreviations/Acronyms ............................................................................................. vList of Tables ................................................................................................................. viExecutive Summary ...................................................................................................... vii

Part One: Introduction ................................................................................................ 11.1 Overview ................................................................................................................ 11.2 Terms of Reference ................................................................................................. 11.3 Methodology ........................................................................................................... 21.4 Timing of the MTEF ................................................................................................. 21.5 Preparation of Medium Term Sector Strategies ........................................................ 31.6 No Sectoral Envelopes ............................................................................................ 31.7 Consultations and Inputs ......................................................................................... 31.8 Fundamental Question ........................................................................................... 4

Part Two: Macroeconomic Framework ..................................................................... 52.1 Introduction ............................................................................................................. 5

2.2 Evaluation and Analysis of the Macroeconomic Projections for

the Preceding Three Financial Years ....................................................................... 5

2.3 Macroeconomic Projections for the Next Three Financial Years and

Their Underlying Assumptions ................................................................................ 72.4 Macroeconomic Policy Objectives ......................................................................... 10

Part Three: Fiscal Strategy Paper .......................................................................... 133.1 The Medium Term Fiscal Objectives ........................................................................133.2 Medium Term Financial Objectives ......................................................................... 133.3 The Objectives of the FSP and the Directive Principles of State Policy ..................... 193.4 Overall Coverage of FSP ........................................................................................ 19

Part Four: The Revenue and Expenditure Framework .................................................. 204.1 Estimates of Aggregate Revenues for the Federation 2022-2024 ............................ 204.2 FGN Revenue Framework ...................................................................................... 224.3 FGN Expenditure Framework ................................................................................. 244.4 Fiscal Deficit and Deficit Financing ......................................................................... 25

Part Five: Consolidated Debt Statement, Contingent Liabilities and Quasi Fiscal Activities ................................................................................................ 285.1 Overview ................................................................................................................ 285.2 Consolidated Debt Statement .................................................................................285.3 Nature and Fiscal Significance of Contingent Liabilities and Quasi Fiscal Activities ............................................................................................. 30

Part Six: Recommendations ......................................................................................326.1 Recommendations .................................................................................................32

Analysis of the 2022 - 2024 MTEF iv | Page

ABBREVIATIONS/ACRONYMS

AMCON Assets Management Company of Nigeria

Bn Billion

BOF Budget Office of the Federation

CBN Central Bank of Nigeria

CIT Companies Income Tax

COVID Coronal Virus Disease

CSJ Centre for Social Justice

DMO Debt Management Office

DSA Debt Sustainability Analysis

ECOWAS Economic Community of West African States

ERGP Economic Recovery and Growth Plan

EXCoF Executive Council of the Federation

FGN Federal Government of Nigeria

FIRS Federal Inland Revenue Service

FRA Fiscal Responsibility Act

FRC Fiscal Responsibility Commission

FSP Fiscal Strategy Paper

GDP Gross Domestic Product

GOEs Government Owned Enterprises

IDITRA Industrial Development Income Tax Relief Act

IGR Internally Generated Revenue

IMF International Monetary Fund

mbpd Millions of Barrels per Day

MDAs Ministries, Departments and Agencies of Government

MOF Ministry of Finance

MTEF Medium Term Expenditure Framework

MTNDP Medium Term National Development Plan

MTSS Medium Term Sector Strategies

NASS National Assembly

NBS National Bureau of Statistics

NNPC Nigeria National Petroleum Corporation

OECD Organisation for Economic Co-operation and Development

OPEC Organisation of Petroleum Exporting Countries

PIA Petroleum Industry Act

PPPs Pubic Private Partnerships

SDGs Sustainable Development Goals

TETFund Tertiary Education Trust Fund

Tn Trillion

VAT Value Added Tax

VATA Value Added Tax Act

WB World Bank

Analysis of the 2022 - 2024 MTEF v | Page

LIST OF TABLES

Table 1: Accretion of External Reserves 2015-2020

Table 2: Data on Deposit and Lending Rates

Table 3: Collected Revenue versus Tax Expenditure

Table 4: Trajectory of Budget Deficit 2015-2020

Table 5: Federation Account and VAT Revenues (2022-2024)

Table 6: Overview of FGN Revenue Framework

Table 7: FGN's Actual Share of Oil Revenue (2015-2020)

Table 8: FGN's Share of Value Added Tax (2015-2020)

Table 9: FGN's Share of Company Income Tax (2015-2020)

Table 10: FGN's Customs (Imports, Exports and Fees)

Table 11: Overview of FGN Proposed Expenditure Framework

Table 12: Deficit, Financing and Critical Ratios

Table 13: Nigeria's Public Debt Stock 2015-2020

Table 14: Quantum of Resources Dedicated to Debt Service (2015-2020)

Analysis of the 2022 - 2024 MTEF vi | Page

EXECUTIVE SUMMARY

The Medium Term Expenditure Framework (MTEF) has been prepared by the Minister of

Finance, endorsed by the Executive Council of the Federation (EXCoF) and sent to the

National Assembly (NASS) by the President in accordance with the demands of the Fiscal

Responsibility Act (FRA). Part One of the Analysis dealt with its overview, the terms of

reference and methodology. It deals with the timing of the MTEF, non-preparation of

Medium Term Sector Strategies (MTSS) and absence of sectoral envelopes. Furthermore,

it deals with consultations and inputs and ends with posing a fundamental question about

the overarching policy document(s) on which the MTEF is anchored.

Part Two is on the Macroeconomic Framework and starts with an introduction. It did an

evaluation and analysis of the macroeconomic projections for the preceding three financial

years. In macroeconomic projections for the next three financial years and their underlying

assumptions, it reviewed crude oil production and the price of crude, economic growth,

inflation, exchange rate, external reserves and ended with missing projections. Part Two

also deals with macroeconomic policy objectives and these are stimulating active private

sector participation and inclusive economic growth; creating adequate productive

employment and preserving jobs; ensuring macroeconomic stability and promoting

poverty reduction and equity. Poverty reduction cannot be a stand-alone programme on its

own. It should be built around a concentric circle of local value addition, reducing imports

through local production and patronage of Nigerian made goods and services, a

procurement system that creates local jobs and builds local capacity, a combination of

employment, trade, fiscal policies etc., to reduce poverty. The contribution of insecurity to

the poor macroeconomic indicators was reviewed.

Part Three is the Fiscal Strategy Paper (FSP) starting with the medium term fiscal

objectives. It reviewed the medium term financial objectives vis, improving government

revenue; creating fiscal space for climate smart infrastructural development and

enhancing fiscal prudence and accountability. In the last objective, the following were

discussed; reducing cost of governance, discontinuing fuel and electricity subsidies, tax

expenditures, recovering misappropriated government revenue and ensuring sustainable

deficit and debt levels. Part Three further deals with the relationship between the

objectives of the FSP and the Directive Principles of State Policy and overall coverage of

the FSP.

Part Four deals with the Revenue and Expenditure Framework. It reviews the estimates of

aggregate revenues for the Federation 2022-2024. The Net Federation Account Main Pool

Revenue is projected to increase by 55.3%, 31.8% and 6.5% respectively in 2022, 2023

and 2024. The 55.3% projected between 2021 and 2022 appears like a quantum leap

which may not materialise. It is admitted that with a fairly low baseline in 2021 due to the

lingering impact of the COVID 19 pandemic, there would be a marked increase in the first

year after full resumption of economic activities.

Analysis of the 2022 - 2024 MTEF vii | Page

In FGN Revenue Framework, the share of oil revenue to FGN overall revenue is projected

at 43% in 2022, 51% in 2023 and 46% in 2024. The share of non-oil taxes (VAT, CIT and

Customs collection) to FGN overall revenue is projected at 29% in 2022, 28% for 2023 and

34% for 2024.

The FGN Expenditure Framework shows that statutory transfers as a percentage of total

FGN budget amounts to 4.31%, 5.15%, 5.23% and 4.96% for the years 2021, 2022, 2023

and 2024 respectively. Debt service, including Sinking Funds to total FGN budget is 29%,

33%, 39% and 44% respectively for the years 2021, 2022, 2023 and 2024. Recurrent non-

debt expenditure amounts to 48.94%, 52.11%, 47.81% and 44.29% respectively for the

years 2021, 2022, 2023 and 2024. The high level personnel costs as a component of

recurrent non debt expenditure (66.4% in 2021; 68% in 2022; 67.9% in 2023 and 67.9% in

2024) is further evidence of the imperative for reducing the cost of governance. Special

interventions funds amounts to 3.04%, 2.94%, 2.61% and 2.39% respectively for the years

2021, 2022, 2023 and 2024. Capital expenditure (excluding GOEs and statutory transfers)

amounts to 32.87%, 23.82%, 20.22% and 18.50% for the years 2021, 2022, 2023 and

2024 respectively.

The proposed Fiscal Deficit and Deficit Financing showed that borrowing projections

contradict the provisions of the Medium Term Debt Management Strategy (MTDS) which

sets a portfolio composition of 70% for domestic debt and 30% for external debt. The

trajectory in the MTEF is leading to a 50:50 ratio. Debt service to revenue ratio will be

increasing in the medium term. Capital expenditure as a percentage of total FGN spending

will be decreasing in the medium term and recurrent expenditure as a percentage of total

FGN spending will be increasing in the medium term.

Part Five is on the Consolidated Debt Statement, Contingent Liabilities and Quasi Fiscal

Activities of FGN. The MTEF starts with an overview and stated that Nigeria's debt is

sustainable.

“The ratio of Nigeria's Total Public Debt as a percentage of GDP remained sustainable at

21.61% as at December 31, 2020. Also, the ratio was below Nigeria's country-specific Debt

Limit of 40% (2020 to 2023), and below the revised WB/IMF's recommended threshold of

55% for Nigeria's peer group, and ECOWAS convergence threshold of 70 percent”.

But this proposition neglected the fact that Nigeria's debt has been increasing in double

digits' year after year since 2015. The highest increase occurred between 2015 and 2016.

Between 2015 and 2020, Nigeria's public debt has increased by 161%. The debt has

increased at a yearly average of 37.74%. A total sum of N11,679,845,205,997 (N11.679tn)

Analysis of the 2022 - 2024 MTEF viii | Page

has been used for debt service for the period 2015-2020. This is a yearly average debt

service payment of N1,946,640,867,666 (N1.946tn). This can be compared to the total

sum of N8.319tn, dedicated to capital/developmental expenditure within the period which

amounts to a yearly average capital expenditure of N1.386tn.

The MTEF states that the MTDS focuses on the development of an optimal borrowing

structure to fund the Government's financing gap and needs, taking into consideration

borrowing options, cost of borrowing and the associated risks with borrowing. Under the

MTDS, the proposed portfolio composition is 70% for domestic debt and 30% for external

debt while total debt as a ratio of the GDP has been increased from 25% to 40%; average

tenure of debt portfolio is a minimum of ten years. It proposed up to 5% of the GDP in

sovereign guarantees for private companies executing public projects and; Promissory

Notes is to be issued to settle Government Arrears, Ways and Means Advance at the

Central Bank of Nigeria (CBN), and the Debt Stock of 5 State Owned Enterprises (SOEs).

It is pertinent to recall that the Consolidated Debt Statement setting out and describing the

fiscal significance of the debt liability of the Federal Government is expected to propose

measures to reduce any such liability. However, the MTEF's proposals are about

measures to increase the liability (debt as ratio of GDP increased from 25% to 40% and up

to 5% of GDP in sovereign guarantees for private companies executing public projects,

etc.) In the final analysis, the Consolidated Debt Statement did not meet the requirement of

describing the fiscal significance of the debt liability, neither did it put forward measures to

reduce the liability. It only made a case for more borrowing in contradiction of the

requirements of the FRA.

The MTEF listed the Contingent Liabilities of FGN but there was no presentation on

measures to offset any such contingent liabilities if they crystallise. The MTEF totally

ignored the Quasi Fiscal Activities of FGN which include the fiscal activities of government

agencies that adds to the attainment of the broad macroeconomic goals of the economy.

Part Six is on the Recommendations. The Analysis concluded with the following

recommendations.

1. MTEFs should be prepared on the strength of high level overarching national

policy instruments. A clear successor to the Economic Recovery and Growth

Plan should be articulated and made available to Nigerians. There are

references in the MTEF to a Medium Term National Development Plan

(MTNDP) which is neither in the public domain or a product of the popular

participation by Nigerians.

Analysis of the 2022 - 2024 MTEF ix | Page

2. The MTEF should be preceded by the preparation of MTSS of the respective

MDAs and spending agencies.

3. The MTEF should contain sectoral envelopes indicating the allocations to the

sectors over the medium term for their recurrent and capital votes.

4. The MTEF should be prepared by the Minister of Finance and ready for

consideration and endorsement of the EXCoF before the end of June in each

year as provided in S.14 (1) of the FRA.

5. The spirit of the FRA indicates transparency, accountability and popular

participation. Compulsory consultation of all the stakeholders before the

preparation of the MTEF is imperative and the fact and process of consultation

should be stated in the MTEF. Consultations allow wider inputs and ownership

of the process by the people.

6. The evaluation and analysis of the macroeconomic projections should not

stop at the last eighteen months but should extend in accordance with S.11 (3)

(a) of the FRA to the last three financial years.

7. For the measures stated in the MTEF to have a chance of success, FGN

should immediately and expeditiously take steps to end terrorism and

insurgency in all parts of Nigeria, specially to stop the criminal elements

involved in kidnapping, murder and preventing farmers from continued

engagement in farming.

8. Monetary policy in the MTEF should seek harmonisation between monetary

and fiscal policies. Monetary policy should bridge the gap between lending

and deposit rates. Lending rate should not exceed deposit rate by more than

500 basis points.

9. The MTEF should document the underlying assumptions, facts and logic in

support of its macroeconomic projections. The projections should be in

consonance with the projections of high level overarching policy instruments

or show reasons supporting the deviation from the targets in the instruments.

10. To stem the continued devaluation of the naira against major international

currencies, reduce inflation and excess liquidity, CBN should avoid the

perpetual creation of new money. It should directly allocate foreign exchange

earned from crude oil sales to the three tiers of government as recommended

in earlier policy instruments.

11. Monetary policy should target a single, unified, market clearing exchange rate

for the Naira in the medium term.

Analysis of the 2022 - 2024 MTEF x | Page

12. The MTEF should contain attainable targets and strategies on creation of

employment, reduction of the trade deficit and improvements in capital

importation.

13. Poverty reduction should be built around a concentric circle of local value

addition, reducing imports through local production and patronage of Nigerian

made goods and services, a procurement system that creates local jobs and

builds local capacity, and a combination of employment, trade, fiscal policies

etc.

14. Poverty reduction strategies should include formalising the informal sector,

universal and compulsory land titling and registration, addressing the needs of

millions of small holder farmers/entrepreneurs and service providers through

structured processes. This also holds the key to improved governmental

revenues through taxation and other revenue sources.

15. To provide resources for improving the right to health, health insurance should

be made compulsory and universal and to be paid for by anyone who earns the

minimum wage while government makes provisions for the unemployed.

16. To facilitate the creation of employment and access to livelihoods for youths,

FGN should immediately lift the ban on twitter and respect the digital rights of

Nigerians in accordance with the constitutional fundamental rights protection

of freedom of expression.

17. To facilitate greater investments and growth in the oil sector will inter alia

require the full implementation of the recently passed Petroleum Industry Act.

Furthermore, considering the huge sums spent on importing petroleum

products, its contributions to the trade deficit and FGN's recent approval of

taking a stake in Dangote Refineries, any further impediments to the coming

on stream of the refinery should be expeditiously addressed.

18. The FRA which provides the framework for operating surplus should be

amended to provide sanctions for default in remitting operating surplus or

supplying false information to deny government of due revenues. Such

amendment should also incentivise the Fiscal Responsibility Commission

(FRC or Commission) to ensure the full collection of appropriate remittances

calculated in accordance with the Operating Surplus Template devised by the

Commission.

19. FGN is encouraged to discontinue fuel and electricity subsidies to create the

fiscal space for funding of infrastructure and other national priority projects.

Analysis of the 2022 - 2024 MTEF xi | Page

However, the prosecution of persons who have contributed to the rot in the

sectors should be undertaken expeditiously.

20. Savings in the cost of governance and removal of subsidies should be

channelled to capital expenditure in critical infrastructure backed by a cost

benefit analysis.

21. FGN should implement schemes requiring the conversion of tax concessions

into refundable tax credits. Tax expenditures should be capped as a

percentage of overall actual and collectible tax. It is recommended that not

more than 20 percent of the available tax revenue be foregone as tax

expenditure. The opportunity for the review of extant tax expenditures is

provided by the annual Finance Act and the 2021 Finance Act should be the

first.

22. Urgent measures are imperative for the recovery of sums due to the

Federation Account and the FGN as reported in annual reports of the Auditor

General for the Federation. Special procedures and court proceedings

leading to the recovery of these outstanding sums should be devised.

23. FGN should consider setting prudential limits like Debt Service/Revenue Ratio

to ensure sustainability of FGN's debts. It is recommended that in the medium

term, debt service should not exceed 50% of retained revenue.

24. There are alternative measures to reduce direct sovereign borrowing

including borrowing for GOEs and providing sovereign guarantees. The case

for Public Private Partnerships (PPPs) which was made in passing at page 31

of the MTEF should be mainstreamed and a list of candidate projects prepared

with a realistic timeline for implementation.

25. Cost benefit and sustainability analysis should precede sovereign borrowing

to ensure that user fees, cost recovery and revenues stream are identified and

firmed up early to ensure that projects funded from debts can pay off the debts

in the medium term without reliance on the consolidated revenue fund.

26. Nigeria is in a position to explore raising investment money through asset

backed securities, especially in GOEs. GOE debts, even backed by a

sovereign guarantee, should strictly and specifically be paid from the

proceeds of the GOEs investments and revenue flows rather than the current

practice of pooling them together with other government debts and their

payment coming from general government revenue. This will promote GOEs

corporate accountability and best practices in corporate governance.

Analysis of the 2022 - 2024 MTEF xii | Page

Part One

INTRODUCTION

1.1 OVERVIEW

The Fiscal Responsibility Act (FRA or Act) was made as an Act to provide for the prudent

management of the nation's resources, ensure long-term macro-economic stability of the

national economy, secure greater accountability and transparency in fiscal operations

within a medium term fiscal policy framework, and the establishment of the Fiscal

Responsibility Commission to ensure the promotion and enforcement of the nation's

economic objectives and for related matters. The fiscal policy framework envisaged by the

Act is the Medium Term Expenditure Framework (MTEF). The MTEF is to be prepared by

the Minister of Finance and presented to the Executive Council of the Federation (EXCoF)

for its consideration and endorsement after which it will be laid before the National

Assembly (NASS) for approval by a resolution of each House of NASS. The MTEF in

accordance with S. 18 of the Act shall:

(1) Be the basis for the preparation of the estimates of revenue and expenditure

required to be prepared and laid before the National Assembly under section 81 (1) of the

Constitution.

(2) The sectoral and compositional distribution of the estimates of expenditure referred

to in subsection (1) of this section shall be consistent with the medium-term developmental

priorities set out in the Medium-Term Expenditure Framework.

The MTEF consists of a Macroeconomic Framework, a Fiscal Strategy Paper, Revenue

and Expenditure Framework, a Consolidated Debt Statement and a Statement on

Contingent Liabilities and Quasi Fiscal Activities of Government. The goal of the current

review of the MTEF by Centre for Social Justice (CSJ) is to produce a review which will

facilitate the consideration and approval of the MTEF by the National Assembly. Further, it

will help NASS to determine whether the 2022 budget proposal (when presented)

complies with the provisions of the FRA.

1.2 TERMS OF REFERENCE

The general terms of reference of this review are:

vTo review the 2022-2024 MTEF as presented by the Executive highlighting

areas of concern with a view to providing NASS with a clear template for its

input into the legislative approval of the MTEF.

vTo review the MTEF submitted by the Executive with a view to highlighting

areas of strengths and weaknesses.

Analysis of the 2022 - 2024 MTEF 1 | Page

vTo review the MTEF in the light of the Fiscal Responsibility Act including the

procedural issues, previous macroeconomic forecasts and their results,

extant macroeconomic indicators and prevailing social and economic

conditions.

The specific terms of reference are:

vTo review the revenue projections of the MTEF against the background of the

criteria used in the projections. The revenue projections will include customs

and excise, companies' income tax, value added tax, income from oil and gas,

FGN independent revenue and balances in special accounts. This is in a bid to

establish whether they are realisable or under-projected and how they can be

reconciled with other macro-economic forecasts and policy goals.

vTo review the expenditure projections including capital, recurrent, statutory

transfers, debt service, etc based on their internal consistency with stated

policy goals and commitments of the government. These will include

reviewing these expenditures against the background of demands of the

overarching national policy instrument, the Sustainable Development Goals

(SDGs) and the extant Debt Sustainability Analysis (DSA) prepared by the

Debt Management Office (DMO), etc.

vTo review the links between monetary and fiscal policy especially how they

impact on the macroeconomic performance of the economy.

vTo review the conditions necessary for the realisation of economic growth,

employment creation and other policy goals and targets.

1.3. METHODOLOGY

The Analysis reviewed the 2022-2024 MTEF against the background of previous MTEFs,

previous budget implementation reports and the five months report on the implementation

of the 2021 budget, economic trends and forecasts from the Budget Office of the

Federation (BOF), National Bureau of Statistics (NBS), Central Bank of Nigeria (CBN),

DSA and annual reports of the DMO, emergent literature on the practice of MTEFs from

different parts of the world, etc. The analysis emerging from the review indicates areas in

need of further clarification, amendments and alignments with available fiscal data and

trends. Both the qualitative and quantitative data materials were sourced from the CBN

Statistical Bulletin and reports for the concerned periods, the NBS reports, DSA and

annual reports from the DMO, the Ministry of Finance (MOF) as well as the BOF.

1.4 TIMING OF THE MTEF

The MTEF 2022-2024 was submitted to NASS in early July 2021, more than four months to

the end of the year. Thus, it got to NASS within the time anticipated in S.11(1) (b) of the


1FRA. However, the draft MTEF was dated July 1, 2021 which implied that it could not have

been considered and endorsed by the EXCoF before the end of the second quarter of the

year as anticipated in S.14 (1) of the FRA.

1.5 PREPARATION OF MEDIUM TERM SECTOR STRATEGIES

The Medium Term Sector Strategies (MTSS) for Ministries, Departments and Agencies

(MDAs) of government precedes and forms the basis for the preparation of the MTEF.

However, the current MTEF did not have the benefit of the input of MDAs through their

MTSS. The MTSS normally reviews high level sectoral policy documents, ongoing

programmes and projects, decides on priorities and the best and cost efficient ways of 2

enhancing governmental service delivery commitments and value for money.

1.6 NO SECTORAL ENVELOPES

Due to the absence of MTSS, the MTEF did not contain sectoral envelopes and ceilings.

MTSS cannot be prepared without the financial envelopes. As such, there is no indication

as to government's priorities. Rather, there are vague phrases that indicate that

government will continue to prioritise a few sectors indicated in page 50 of the MTEF

including power, transportation, physical infrastructure, etc. However, there is a 2022

proposed sectoral capital expenditure ceiling at page 10 of the Federal Government of

Nigeria (FGN) 2022 Budget Call Circular dated August 19 2021 which implies that this 3ceiling was prepared after the MTEF had been submitted to NASS.

1.7 CONSULTATIONS AND INPUTS

The Act in section 11 requires the Federal Government to consult States as part of the

process of formulating the MTEF. The reasons for this requirement are not far-fetched.

Macroeconomic indicators like the benchmark price of oil, interest, inflation and exchange

rates would definitely impact on the revenue and expenditure of States. Also, most States

in the Federation depend on allocations from the Federation Account as their main source

of revenue. The States are therefore partners and stakeholders who should make

contributions to MTEF formulation. However, there is no indication in the MTEF as to

whether States were consulted and the nature of such consultation.

The Act in S.13 (2) (b) further requires the Minister to seek inputs from the National

Planning Commission, Joint Planning Board, National Commission on Development

Planning, National Assembly, Central Bank of Nigeria, National Bureau of Statistics,

1 https://www.budgetoffice.gov.ng/index.php/draft-2022-2024-mtff-public-consultation2 There was no reference to the MTSS process in the MTEF.3 https://www.budgetoffice.gov.ng/index.php/2022-fgn-budget-call-circular. There are broad guidelines limiting personnel expenditure in the 2022 Personnel Cost Budget Call Circular. See https://www.budgetoffice.gov.ng/index.php/2022-personnel-cost-budget.


Revenue Mobilisation Allocation and Fiscal Commission and any other relevant body as

the Minister may determine. The mandatory “shall” is used by the section in directing the

Minister to seek the inputs. There is no indication in the MTEF whether these inputs were

sought from the listed agencies. It is imperative that the MTEF details its formulation

process so as to enable a dispassionate third party to determine whether there has been

compliance with the law.

By S.13 (2) (a), in preparing the MTEF, the Minister may hold consultations on the

Macroeconomic Framework, the Fiscal Strategy Paper, the Revenue and Expenditure

Framework, the strategic economic, social and developmental priorities of government

and such other matters as the Minister deems necessary. There is no indication in the

MTEF whether such consultations were held. What the Minister could call a consultation

was a briefing that lasted for not more than one and half hours a day before the MTEF was

submitted to NASS and nothing was added or subtracted from the draft MTEF arising from

the consultation.

Although the Act used the discretionary “may” in directing the Minister to hold

consultations, the intention of the legislature was to ensure popular inputs and

participation in the formulation of this very important policy document. This position is

supported by the provisions of S. 48 (1) of the FRA which requires the Federal Government

to ensure that its fiscal and financial affairs are conducted in a transparent manner,

ensuring full and timely disclosure and wide publication of all transactions and decisions

involving public revenues and expenditures and their implications for its finances.

Transparency is the bedrock of participation because there can be no meaningful

participation and input making without access to fiscal information.

1.8 FUNDAMENTAL QUESTION

The MTEF should be anchored on an overarching high level national planning framework

and its implementation plan. With the expiry of the Economic Recovery and Growth Plan

(ERGP) about ten months ago and the absence of a successor plan, a key poser is raised.

What is the overarching anchor the 2022-2024 MTEF? There is a reference in the MTEF to

a Medium Term National Development Plan (MTNDP). But this MTNDP is still in a draft

form and the proposal is for President Muhammadu Buhari to launch the MTNDP in

October 2021. Assuming without conceding that the MTNDP has been finalised, there is no

copy available in the public domain. A document that is not available to the public cannot be

the basis of the MTEF.


Part Two

MACROECONOMIC FRAMEWORK

2.1 INTRODUCTION

Section 11(3) (a) of the FRA 2007 requires that:

The Medium-Term Expenditure Framework shall contain:

“a Macroeconomic Framework setting out the macro-economic projections, for

the next three financial years, the underlying assumptions for those projections

and an evaluation and analysis of the macroeconomic projections for the

preceding three financial years”.

The two key indicators in the subsection are:

·Macroeconomic projections for the next three financial years and their underlying

assumptions;

·Evaluation and analysis of the macroeconomic projections for the preceding three

financial years.

Our analysis will inter alia review whether the MTEF as presented meets this requirement.

It appears that the MTEF started with the evaluation and analysis of the macroeconomic

projections for the preceding three financial years.

2.2 EVALUATION AND ANALYSIS OF THE MACROECONOMIC PROJECTIONS

FOR THE PRECEDING THREE FINANCIAL YEARS

The MTEF reviewed global economic developments and implications especially within the

context of the downturns arising from the COVID 19 pandemic. It reports the expectation of

vaccine powered recovery projected at 6% by the International Monetary Fund (IMF) after

the 3.5% decline in 2020. The Euro Zone is expected to grow by 4.4% in 2021 as China

leads the global recovery effort with a first quarter 2021 growth of 18.3%. Sub-Saharan

Africa's fiscal challenges, especially in debt and the benefits emanating from the

commencement of the Africa Continental Free Trade Area were reviewed without 4

projected figures for economic growth.

The Nigerian economy was presented as consolidating the exit from recession in Q4

2020 with a tepid growth of 0.51% in Q1 of 2021. Economic recovery is stated to be

fragile and this is more demonstrated in the oil sector. The unemployment and

underemployment rates are 33.3% and 22.8% respectively and this is linked to

increasing poverty. In the monetary sector, inflation rate stood at 17.93% in May


4 See pages 2 and 3 of the MTEF.

2021 while the Monetary Policy Rate has been unchanged at 11.50%. The CBN is reported

to have “embarked on measures to address foreign exchange supply shortage in order to

maintain exchange rate stability in the import and export window and reduce speculative

activities”. It is implementing “a demand management framework which is designed to

bolster the production of items that can be produced in Nigeria, and aid conservation of

external reserves” and “a gradual liberalisation of the foreign exchange market”. However,

the MTEF did not explicitly state the high level of depreciation of the Naira to foreign

currencies. Foreign exchange reserves are stated to be $34.2billion sufficient to cover

seven months of import of goods and services. The CBN is reported to be implementing

measures to boost foreign exchange inflows into the economy including diaspora

remittances.

The external sector recorded a 10.3% depreciation in foreign trade in 2020. While the

value of imports increased by 17.3%, the value of exports dropped by 34.8%. Q1 2021

trade report shows that imports stood at N6.9trillion while exports were valued at

N2.9trillion which shows a huge trade deficit. Crude oil accounted for 66.38% of exports in

Q1 2021. Trade deficit increased from 3.6% of GDP in 2019 to 4% of GDP in 2020. Capital

importation declined from $24billion in 2019 to $9.7billion in 2020, a fallout of the impact of

the COVID pandemic.

The MTEF reported the performance of revenue and expenditure of the federal budget and

accruals into the Federation Account for distribution to the three tiers of government in

2020. Oil and gas revenue inflow into the Federation Account after deductions was 43.6% 5

more than the target. N5.15trillion was projected as non-oil revenue while N3.86trillion

was realised being a shortfall of 24.9%. Of the N5.635trillion expected by the federal

government, only N3.94trillion was realised being a 27% shortfall. Projected FGN

expenditure was N9.973trillion while the actual expenditure was N10.157trillion

representing a variance of 1.8%. Debt service was 13.2% more than projected. The review

of the budget performance of 2021 (January to May) shows that of the pro-rated expected

revenue of N3.327trillion, only N1.844trillion accrued being a shortfall of 44.6% while the

pro-rated expenditure of N5.661trillion recorded actuals of N4.857trillion being a variance

of 14.2%. Actual debt service exceeded the prorated by 30.1%.

Essentially, the MTEF has substantially satisfied the FRA's requirement of an evaluation

and analysis of the macroeconomic projections for the preceding three financial years.

However, the review to a great extent was limited to the last 18 months.


5 It was 45.2% more than target before deductions.

2.3 MACROECONOMIC PROJECTIONS FOR THE NEXT THREE FINANCIAL

YEARS AND THEIR UNDERLYING ASSUMPTIONS

(i) Crude Oil Production and Price of Crude Oil: The MTEF states as follows:

“An average 1.93mbpd of crude oil was produced over the last 3years. Hence,

following consultation with stakeholders, crude oil production is estimated at

1.88mbpd, 2.23mbpd, 2.22mbpd in 2022, 2023 and 2024 respectively. This very

conservative oil output benchmarks were adopted for the medium term to ensure

greater budget realism”.

Considering the available production capacity, Organisation of Petroleum Exporting

Countries (OPEC) quota and the recovering global economy, the projection and its

underlying assumptions are realistic. Other consideration included in the determination of

the production volume are shutdown of flow stations for pipeline leakage repairs, terminal

maintenance, theft of products and pipeline vandalisation, etc. If there are no supervening

circumstances and based on projected global economic recovery, the proposed prices of

$57 per barrel in 2022 and 2023 and $55 in 2024 are realistic.

(ii) Economic Growth: The MTEF states that:

“In the medium term, it is projected to rise to 4.2% in 2022 before moderating to 2.3%

in 2023 and picking up to 3.3% in 2024. Growth drivers are expected to remain

telecommunications, agriculture, cement, and broadcasting. Overall pre-election

expenditure towards 2023 General Elections may also contribute to the growth-drive.

Therefore, overall growth is still likely to be muted in 2021”.

This projection was made before National Bureau of Statistics (NBS) released Q2 2021

GDP Report. The underlying assumptions, logic and consistency of growth rising to 4.2%

in 2022 and declining to 2.3% in 2023 and further rising to 3.3% in 2024 is not stated in the

MTEF. If the economic growth rises to 4.2% in 2022, the expectation (if there are no clear

predictable headwinds/downsides) is that the momentum garnered in 2022 will be

sustained either to retain the same level of growth or improve on same in 2023 and 2024.

Rather, the MTEF presents an undulating growth pattern. The growth projections need to

be reviewed. It does not seem to support President Muhammed Buhari's plan of lifting

hundred million Nigerians out of poverty in ten years.

(iii) Inflation: The MTEF states that:

“Inflation rate is revised at 15% on average for 2021 (up from 12.25%) but 13% in

2022, 11% in 2023 and 10% in 2024. Upward pressure on prices is expected to be

impacted by sluggish decline in headline rate as at mid-2021, insecurity, rising

imports and exchange rate depreciation. In addition, new analysis on the role of fuel,

transport and electricity prices and border closure, imported food inflation are

expected to put an upward pressure on prices. Downward pressures are expected to


be motivated by base effects, and likely response of CBN to tame inflation amidst

expected pre-election season spending”.

The underlying assumptions of likely increases in the price of premium motor spirit,

transport fares, electricity tariffs and further depreciation of the Naira amidst rising imports

and insecurity which negatively impacts on production especially in agriculture leading to

increased food imports cannot be the basis for inflation to moderate to 13% in 2022, 11% in

2023 and 10% in 2024. Rather, these are reasons that will most likely keep inflation at

present levels or even further increase same.

It is imperative to recall the position of the Monetary Policy Committee of the CBN in its 6

Communique No.137

“At this meeting, the MPC was delighted that inflation had begun to trend

downwards, while output growth had remained positive. Committee, however, was

of the opinion that there was a need to continue to put in place policy measures that

will further and faster drive down inflation, while at the same time accelerate output

growth to levels above population growth rate. Whereas, the arsenal at its disposal 7

had almost become fully exhausted , MPC believe that there is the need to continue

to use those tools that had been adopted so far, even in a more aggressive manner.

MPC, therefore, encourages the Bank to continue using its existing administrative

methods to rein-in inflation by the use of its discretionary CRR policy to mop-up

liquidity from the banking system as the need arises”.

(iv) Exchange Rate: Projecting the average exchange rate at N410.15 to 1USD over

the medium term is not an exercise backed by empirical evidence. At best, this is the wish

of the monetary authorities. The MTEF provides no underlying assumptions for this

projection. It is common knowledge that USD is not available to most Nigerian businesses

at this rate and there are multiple exchange rates which encourage round-tripping and

corruption. Projecting for a single, unified, market clearing exchange rate in the medium

term is the way forward based on expert opinion and international best practice 8recommendations.

Furthermore, to boost the value of the naira against major international currencies would

require the avoidance of the creation of new money. This would imply the direct allocation

of foreign exchange earned from oil to the three tiers of government rather than monetising

it. This was the unimplemented recommendation of Vision 20:2020 which has since been 9ignored by monetary and fiscal policy. Vision 20:2020 however recognises that this may

facilitate capital flight, but this is not a challenge that cannot be surmounted.


6Dated July 27, 2021.7Underlining supplied for emphasis.8https://www.imf.org/en/News/Articles/2021/06/17/pr21184-nigeria-imf-staff-concludes-virtual-visit-with-nigeria.9 Vision 20:2020 at page 24. Henry Boyo, an economist wrote for Punch and other newspapers has made this recommendation an article of faith in most of his writings as a solution to a number of economic problems including inflation, excess liquidity, revaluation of the naira, etc.

(v) External Reserves: This is projected at $35.77billion in 2022 being a growth of

5.99%, $36.77billion in 2023 being a growth of 2.79% and $37.76billion in 2024 being a

growth of 2.71%. The MTEF contains no explanations on the basis of these figures. Table 1

shows the accretion of external reserves 2015-2020.


10 https://www.cbn.gov.ng/Out/2021/BSD/WEEKLY%20INTEREST%20RATE%20AS% 20AT% 20 AUGUST%2027,%202021.pdf

Table 1: Accretion of External Reserves 2015-2020

Year

External

Reserves (US$

bn)

Year External

Reserves (US$

bn)

2015 28.28 2018 42.59

2016 26.99 2019 38.09

2017 39.35 2020 36.48

Source: BOF, Q4 Budget Implementation Reports (2015-2020)

However, considering the level of accretion to the reserves in the last six years of the

current administration as shown in Table 1, this projection appears realistic.

(vi) Missing Projections: There were no projections on unemployment despite the

prevalent high rates in the country, especially for the youthful segment of the population.

There is nothing in the MTEF to bridge the gap between the lending and deposit rates.

Table 2 shows the data on deposit and lending rates.

Table 2: Data on Deposit and Lending Rates

DEPOSITS

a. Demand Deposit Average Interest Rate in

Deposit Money Banks

Maximum: 1.15% Minimum: 0.01%

b. Savings Deposit Average Interest Rate in

Deposit Money Banks


c. Time Deposit Average Interest Rate in

Deposit Money Banks


LENDING

Finance and

Insurance

Prime Maximum: 27% Minimum: 6.50%

Max Maximum: 45% Minimum: 13%

Capital Markets Prime Maximum: 25% Minimum: 12%


General Prime Maximum: 27% Minimum: 4%


Source: CBN, “Deposit and Lending Rates in the Banking Industry for the Week ended August

27, 2021”10

While the prime lending rate is about 27% and maximum lending rate at 49%, deposit rates are very low and far below the extant inflation rate. The implication is that Nigerians are discouraged or rather punished if they save their income, because

they will incur a loss at the end of the year considering that deposit rates are lower than the

inflation rate. With the fast depreciation of the Naira, Nigerians may have been compelled

to keep their money in foreign currencies, crypto currencies, jewels or other means of

storing value apart from the Naira. To curb this development may require that the deposit

and lending rates are tied to a corridor of not more than 500 basis points linked to the level

of inflation.

The MTEF was also silent on trade and capital importation projections. The rising trade

deficit requires urgent and evidence based strategies to reverse the trend through

increasing local production and value adding capacity. Reduced capital importation is to a

great extent linked to the ease of doing business in Nigeria which needs to be seriously

reviewed in the light of the aggravated scenario of insecurity. The MTEF needs to address

investors' perception and experiences of doing business in Nigeria.

In conclusion, the MTEF partially met the requirement of providing macroeconomic

projections for the next three financial years and their underlying assumptions.

2.4 MACROECONOMIC POLICY OBJECTIVES

The MTEF defined the medium economic objectives as follows:

·Stimulating active private sector participation and inclusive economic growth;

·Creating adequate productive employment and preserving jobs;

·Ensuring macroeconomic stability; and

·Promoting poverty reduction and equity.

(i) Stimulating Active Private Sector Participation and Inclusive Economic Growth:

The first issue of stimulating active private sector participation and inclusive economic

growth focused on the growth projections which have already been reviewed in the

projections. However, it is pertinent to point out the growth figures recorded in Q2 of 2021

which shows that quarter-on-quarter, the oil sector recorded a growth rate of -20.35% in Q2

2021. The oil sector contributed 7.42% to total real GDP in Q2 2021, down from figures

recorded in the corresponding period of 2020 and down compared to the preceding

quarter, where it contributed 8.93% and 9.25% respectively. This shows a shrinking

contribution by the oil sector and the sector has not been able to attract commensurate

investments in the last couple of years. Indeed, there has been disinvestment by oil

majors. To facilitate greater investments and growth in the sector will inter alia require the

full implementation of the recently passed Petroleum Industry Act. Furthermore,

considering the huge sums spent on importing petroleum products, its contributions to the

trade deficit and FGN's recent approval of taking a stake in Dangote Refineries, any further

impediments to the coming on stream of the refinery should be expeditiously addressed.


11Quarter 2 2021 GDP reports states that:

“The non-oil sector grew by 6.74% in real terms during the reference quarter (Q2 2021).

The Q2 2021 growth rate was higher by 12.80% points compared to the rate recorded in the

same quarter of 2020 and 5.95% points higher than the first quarter of 2021. During the

quarter, the sector was driven mainly by growth in Trade, Information and Communication

(Telecommunication), Transportation (Road Transport), Electricity, Agriculture (Crop

Production) and Manufacturing (Food, Beverage & Tobacco), reflecting the easing of

movement, business and economic activity across the country relative to the same period a

year earlier. In real terms, the Non-Oil sector contributed 92.58% to the nation's GDP in the

second quarter of 2021, higher from shares recorded in the second quarter of 2020 which

was 91.07% and the first quarter of 2021 recorded as 90.75%”.

Agriculture's contribution of 22.13% to the nominal GDP in Q2 and its diminishing growth of

only 6.34% when compared to the preceding quarter growth of 15.14%, represents a

decrease of -8.78% points. The MTEF and policy implementation should interrogate the

binding constraints on the growth of agriculture with a view to its removal. A good part of the

constraints border on insecurity. The inclusivity aspect of the projected economic growth

was not articulated in the MTEF.

(ii) Creating Adequate Productive Employment and Preserving Jobs: The second

objective is to create adequate productive employment and preserve jobs. The MTEF

states that it wants to tap the demographic dividend and create opportunities for youths to

be employed; to gain skills for employability, entrepreneurship and ensure that growth is

job rich. But when you match these promises with recent governmental action especially in

relation to the Twitter ban and sanctions against youth-led enterprises following the

#EndSARS crisis, the objectives and promises are contradicted by governmental action.

The Twitter ban violated the right to own, establish and operate any medium for the

dissemination of information, ideas and opinions which is provided in Section 39 (2) of the

Fundamental Rights Chapter of the 1999 Constitution. The right of Nigerian youths to earn

a livelihood is a component of their rights to life and human dignity. Under the duties of

state, government has obligations to respect (refrain from violating existing rights), protect

(stop third parties from violating rights and effective use of regulation and law enforcement

to promote rights) and fulfil the rights of citizens (budgetary, administrative, judicial, etc., 12measures). If the government relies on absence of resources as an excuse for its failure

to make direct interventions for the benefit of the youth, it should not take action that takes

away existing jobs that the youths have created for themselves without any assistance

from the state. All it needed to have done was to refrain from those actions. The state

requires no resources to restrain itself from violating the rights of young Nigerians.


11 NBS Quarter 2 GDP 2021 Report12 Maastricht Guidelines on Violations of Economic, Social and Cultural Rights.

The MTEF states an objective in maintaining macroeconomic stability. It discusses the

galloping prices and the high level of inflation and states that a combination of fiscal,

monetary, exchange rate, and trade policies will be used to address the key sources of

inflation in the medium term complemented by job creation interventions. But central to

achieving growth, creating jobs and stabilising the macro economy is the overwhelming

need to reduce insecurity. The security challenge is fundamentally a rule of law issue. It is

about non-state actors overwhelming the state with violence and the state lacking the

capacity and political will for an effective response to reclaim the space.

(iii) Ensuring Macroeconomic Stability: One of the key challenges identified under

this heading is inflation and the MTEF states:

“The rate of inflation rose steadily from 2020 reaching a four-year high by March 2021 and

decelerating recently. Current inflation is driven mainly by rise in the cost of food

exacerbated by insecurity and conflict, pandemic-related shocks and market access. High

inflation rates worsen poverty, depress economic activity and dampens growth. The mix of

high inflation and high unemployment also exacerbate macroeconomic risks”.

No measures or new policies will improve growth, add value or create wealth in an

environment where every day, Nigerians in major parts of the country can no longer

engage in their normal livelihoods or can only do so at great risk to life. Recent reports

indicate the default rate (inability to pay back loans) in the Anchor Borrower's Programme

meant to facilitate increased productivity and value addition in agriculture is as high as

70%. A good part of this default is attributable to insecurity. So, how would we reduce food

inflation by mere proclamation without government attending to the challenge of

insecurity? How would our balance of trade become favourable when we are massively

importing food, etc.? Insecurity and restoring the rule of law needs to be vigorously

addressed.

(iv) Promoting Poverty Reduction and Equity: It is imperative to point out that

poverty reduction cannot be a stand-alone programme on its own. Rather, it should be

mainstreamed across many government programmes and policy implementation

mechanisms. The cash handouts funded from borrowed funds is not sustainable and

contributes to the creation of other challenges around deficits and debt. Thus, poverty

reduction ought to be mainstreamed into key employment sectors of the poor especially in

agriculture and the informal sector of the economy. It should be built around a concentric

circle of local value addition, reducing imports through local production and patronage of

Nigerian made goods and services, a procurement system that creates local jobs and

builds local capacity, a combination of employment, trade, fiscal policies, etc., to reduce

poverty.


Part Three


3.1 THE MEDIUM TERM FISCAL OBJECTIVES

In accordance with the Act, the Fiscal Strategy Paper (FSP) is supposed to contain:

(i) the Federal Government's medium-term financial objectives,

(ii) the policies of the Federal Government for the medium-term relating to taxation,

recurrent (non-debt) expenditure, debt expenditure, capital expenditure, borrowings and

other liabilities, lending and investment,

(iii) the strategic, economic, social and developmental priorities of the Federal Government

for the next three financial years,

(iv) an explanation of how the financial objectives, strategic, economic, social and

developmental priorities and fiscal measures set out pursuant to sub-paragraphs (i), (ii) and

(iii) of this paragraph relate to the economic objectives set out in section 16 of the

Constitution.

The MTEF had defined the strategic economic, social and developmental priorities of FGN

in the macroeconomic objectives in Part Two. They are: stimulating active private sector

participation and inclusive economic growth; creating adequate productive employment

and preserving jobs; ensuring macroeconomic stability; and

promoting poverty reduction and equity. These objectives have been analysed in Part

Two.

3.2 MEDIUM TERM FINANCIAL OBJECTIVES

The MTEF predicates the fiscal policy in the medium-term on sustaining reforms,

enhancing fiscal resilience and ensuring fiscal and debt sustainability. This will be

achieved through four key interventions vis; improving government revenue; creating

fiscal space for infrastructural development; enhancing fiscal prudence and transparency;

and ensuring sustainable deficit and debt levels. The elaboration of these four key

strategies in the MTEF raises so many issues that are good on paper but there is always

the challenge of implementation. The discourse below raises some pertinent issues which

were not addressed and interrogates some of the methodologies of achieving the

objectives.

(i) Improving Government Revenue: The target of increasing Revenue to GDP ratio

to 15% is a welcome development. However, the MTEF fails to interrogate the

disconnect/links between sectoral contributions to GDP and revenue. Why is agriculture's

contributing for instance 22.13% of GDP and much less revenue than the oil sector which

contributes 7.42% of GDP? The challenge of formalising the informal sector, universal and

compulsory land titling and registration, addressing the needs of millions of small holder

farmers/entrepreneurs and service providers through structured processes holds the key

to improved revenues through taxation and other revenue sources.


Although the MTEF was produced before the passage of the PIA, ramping up revenue

from the oil sector will demand the full implementation of the PIA. The recommendations

for improving tax revenue are elaborate. However, they are not new as they have been

canvassed in previous economic policy documents. Plugging loopholes in tax collection by

the FIRS is possible. It is more about the political will to enforce the tax laws. Again,

improving customs revenue is achievable as many of the measures proffered in the MTEF

have been proposed in the past and even budgeted for. The failure of scanning and

automation machines at the ports is clearly about the absence of political will to checkmate

corruption and diversion of public funds by the operators of the system. The failure of the

customs service to checkmate smuggling to foreign countries, especially of petroleum

products subsidised at the Nigerian tax payers' expense could not have continued at

current pace without the neglect, failure or connivance of the authorities.

The compliance gap across different taxes shows the critical nature of the leakage in 13

government revenue. The VAT compliance gap in 2020 was estimated at N3.3trillion. In

CIT Collection Efficiency, it is reported that Nigeria compares poorly to regional peers and 14

Organisation for Economic Co-operation and Development (OECD) benchmark. The

chief executives of these revenue generating agencies should have clear targets and

mandates in their contract of service and should continue in office or be disengaged based

on substantially meeting or failing to meet the stated targets.

For independent revenue, the listed measures, if fully implemented can realise more

revenue. Limiting cost to revenue ratio to a maximum of 50% and effecting a direct 15deduction from the TSA to enforce compliance with operating surplus requirements;

mandatory use of Treasury Single Account for all transactions of Government Owned

Enterprises (GOEs); exclusion of agencies with capacities for self-funding from allocations

in the Federal Budget; amendment of relevant sections of the Acts establishing some of the

GOEs to reflect current economic realities and policy thrust of government, etc., are all

welcome proposals. However, the imposition of appropriate sanctions for unauthorised

use of the Internally Generated Revenue (IGR) can only be done under an enabling legal

framework vide S.36 (12) of the Constitution:

“Subject as otherwise provided by this Constitution, a person shall

not be convicted of a criminal offence unless that offence is defined and


13 Page 56 of the MTEF.14 At page 57 of the MTEF.15 In accordance with S.62 of the Finance Act 2020 which amended s.22 of the FRA.

the penalty therefor is prescribed in a written law, and in this subsection, a

written law refers to an Act of the National Assembly or a Law of a State, any

subsidiary legislation or instrument under the provisions of a law”.

The FRA which provides the framework for operating surplus should be amended to

provide sanctions for default in remitting operating surplus or supplying false information to

deny government of due revenues. Such amendment should incentivise the Fiscal

Responsibility Commission (FRC or Commission) to ensure the full collection of

appropriate remittances calculated in accordance with the Operating Surplus Template

devised by the Commission.

(ii) Creating Fiscal Space for Climate Smart Infrastructural Development: The

MTEF seeks to create the fiscal space for climate smart infrastructure and the key sectors

include security, power and transportation, agriculture, manufacturing, housing and

construction, education, health and water resources. In creating fiscal space, existing

funds in key sectors need to optimally managed and utilised with improvements in

accretion of the funds. For instance, the National Housing Fund has been sub-optimally

managed and the opportunities accruing from such a Fund has not been fully explored.

Millions of eligible contributors are yet to be enrolled in the Fund while available resources

running into hundreds of billions have not been managed in a way and manner that

responsively benefits contributors. Other funds include the Universal Basic Education

Fund, TETFund, the Basic Health Care Provision Fund, etc. need to be more responsively

managed to promote climate smart infrastructure.

(iii) Enhanced Fiscal Prudence and Accountability

(a) Reducing Cost of Governance: Creating a fiscal space for increased developmental

expenditure will include a reduction in the cost of governance which can be achieved if the

recommendations of the Oronsaye committee are reviewed and implemented. The

implementation of the Committee's report has been recurring in many economic policy

recommendations but no action has been taken for its implementation. The political will to

implement this reports seems to be lacking. However, reducing the cost of governance is

imperative in a constrained fiscal environment where FGN is using over 97% of retained

revenue to service debts. In 2020, FGN retained revenue was N3.937tn while debt service

was N3.342tn. Debt service was 84.8% of retained revenue in 2020. Between January and

May 2021, FGN retained revenue was N1.844tn while the debt service was N1.802tn. Debt

service was 97.7% of retained revenue in the first five months of 2021. The implication of

the foregoing revenue and expenditure profile is that FGN is borrowing to pay salaries

contrary to the FRA which permits borrowing only for capital and developmental 16

expenditure.


16 See sections 41 and 44 of the FRA.

(b) Discontinuing Fuel and Electricity Subsidies: This is recommended by the MTEF.

This is a step in the right direction but the political will to implement these reforms seems to

be the challenge. In 2021, there was no provision for fuel subsidy in the budget but FGN is

still subsiding fuel while FGN through the Minister of State for Petroleum Timipre Sylva has 17recently indicated that subsidy is not about to be withdrawn. Fuel subsidy is estimated to

be in the region of N1.8trillion a year. A critical component of the fuel subsidy debate is the

claim that fuel consumption jumped from 35m litres a day in2015 to over 55million litres a

day in 2021. This claim is suspect considering the fact that the economy in 2015 had more

functional production centres (factories, farms, service delivery and other firms) and after

two recessions, factory closures and record level unemployment as well as insecurity

across the federation, fuel consumption could not have increased. Even the NNPC and

authorities have acknowledged that Nigeria cannot be consuming this quantity of

petroleum products. We are back to the days of providing opportunities for creative fuel

subsidy accounting which allows certain individuals to fleece the public treasury.

Alternatively, the state through the Customs is failing to police our borders to ensure that

smuggling of petroleum products does not become a very lucrative trade. Fuel subsidy

makes no sense in the current circumstances. Electricity subsidies should be discontinued

to raise funds through cost reflective tariffs for investments in the sector. However, this is

not a call for the public to subsidise the inefficiencies and corruption in the power sector.

(c) Tax Expenditures: The MTEF recommends a number of general and specific

interventions around tax expenditure including review of sectors eligible for Pioneer Tax

Holiday Incentives under the Industrial Development Income Tax Relief Act ('IDITRA');

review of fiscal incentives of the National Automotive Policy; review of process and

approvals of Import Duty Exemption Certificates; evaluation of current suite of fiscal

incentives including Auto Policy Incentives and Import Duty Exemptions; and Tax

Expenditure studies and review of Tax Expenditures. Table 3 shows the respective tax

expenditures and actual revenues.


17 https://www.channelstv.com/2021/08/05/no-set-date-for-removal-of-subsidy-petroleum-ministry/

Table 3: Collected Revenue versus Tax Expenditu re

Tax Collected

Revenue (N)

TE/Foregone

Revenue (N)

TE as a Percentage

of Collected Revenue

VAT 1.8trn 900bn 50%

CIT 1.479tn 457bn 30.8%

PPT Not available 307bn

Customs 931.6bn 780bn 83.7%

Total 4.21tn 2.444tn 57.9%

Source: MTEF 2022-2024

According to the MTEF, if all commodities in the Nigerian VAT system were fully taxable,

the country could generate about N6trillion from the existing tax structure. But Nigeria

generated only N1.8trillion in 2020 and N900 billion was foregone and attributable to

exemptions contained in legislation while the balance of N3.3trillion was lost to the huge

compliance gap. Thus, foregone VAT is 50% of the collected revenue. It is further reported

that some firms, notably in the financial sector, are granted relief from VAT. Because this

relief is not set out in the VATA, it is not captured as a tax expenditure in the current 18estimates.

For CIT, compared to the N1.1trillion recorded in 2019 as foregone revenue, only

N457billion was reported in 2020. This massive decline cannot be supported by empirical

evidence and the MTEF states that this is attributable to “the inconsistencies in data

formats and level of details obtained”. The collected CIT was N1.479trillion; thus, the

foregone CIT was 30.8% of the collected revenue. A partial estimation of foregone PPT put 19

the figure at N307billion. Unavailability of data made it impossible to compute the entire

foregone taxation under this head. The foregone customs revenue in 2020 amounted to

N780 billion comprising N600 billion from waivers of import duties and NGN 180billion from

VAT on import duties. The actual customs revenue collection for 2020 was N931.6 billion.

The waivers amount to 83.7% of collected revenue.

Essentially, foregone revenue was 57.9% of collected revenue. Going forward, two options

come to the fore, the recommendation of the MTEF is that schemes requiring the

conversion of tax concessions into refundable tax credits be set up. The second (not from

the MTEF) is that tax expenditures are capped as a percentage of overall actual and

collectible tax. It is recommended that not more than 20 percent of the available tax

revenue be foregone as tax expenditure. The opportunity for the review of extant tax

expenditures is provided by the annual Finance Act and the 2021 Finance Act should be

the first.

Furthermore, compliance with S. 29 of the FRA is imperative going forward:

Any proposed tax expenditure shall be accompanied by an evaluation of its

budgetary and financial implications in the year it becomes effective and in the three

subsequent years, and shall only be approved by the Minister, if it does not

adversely impair the revenue estimates in the annual budget or if it is accompanied

by countervailing measures during the period mentioned in this subsection through

revenue increasing measures such as tax rate raises and expansion of the tax base.


18 At page 56 of the MTEF.19 At page 57 of the MTEF.

Even though some of these tax expenditures were not recently granted, they impair the

revenue estimates of the annual budget, therefore, countervailing measures ought to be

put in place.

(d) Recovering Misappropriated Government Revenue: The MTEF was silent on this

matter. Between 2014 to 2018, the Auditor General's reports on the accounts of the

Federation indicate not less than N7tn in illegally withheld sums, mismanaged,

misappropriated and stolen public funds. The expectation is that urgent measures will be

recommended in the MTEF for the recovery of these sums due to the Federation Account 20and the FGN. Special procedures and court proceedings leading to the recovery of these

outstanding sums should be devised.

(iv) Ensuring Sustainable Deficit and Debt Levels: The MTEF acknowledges the

rising deficit and debt levels but projects the strengthening of government finances and

reducing fiscal deficits over time. The deficits will continue to grow as long as government

revenues are grossly insufficient. FGN pledged to keep debts at the “self-imposed debt sustainability threshold of 40% of GDP to ensure debt sustainability”. Table 4 shows the

trend of deficits between 2015 to 2020.


20 “Key Issues from the 2014-2017 Federal Audit Reports” (2020) and “Key Issues in the 2018 Federal Audit

Report” (2021) by CSJ.

Table 4: Trajectory of Budget Deficit 2015-2020

Year

Retained

Revenue

(Nbn)

Actual

Budget

Expenditure

(Nbn)

Deficit

(Nbn)

Deficit as a

Percentage

of overall

Expenditure

2015 2,776.36 4,767.36 1,991.00 42%

2016 2,621.16 4,396.24 1,775.08 40%

2017 2,377.01 6,463.61 4,086.60 63%

2018 3,480.90 7,511.19 4,030.29 54%

2019 4,120.09 8,298.82 4,178.73 50%

2020 3,418.30 10,017.26 6,598.96 66%

Source: BoF, Q4 & Consolidated Budget Implementation Reports 2015-2020

From Table 4 and since 2017, deficit expenditure has surpassed retained revenue. In

2015, 2016, 2017, 2018, 2019 and 2020, FGN deficit spending has been 42%, 40%, 63%,

54%, 50% and 66% respectively of actual budget expenditure. The deficit as a percentage

of overall expenditure since 2015 has averaged 53%.

The MTEF states that the FGN will consider prudential limits like debt service/revenue ratio

to ensure continuing sustainability of FGN debts. It is proposed that in the medium term,

FGN should be working towards debt service as a percentage of revenue not exceeding

50%. In the circumstances of rising deficits, it is recommended that FGN sticks to

legal and policy provisions. In the instance of Ways and Means from the CBN, FGN is

owing CBN over $25bn, FGN should ensure the full observance of S.38 of the CBN Act:

38.(1) Notwithstanding the provisions of section 34 (d) of this Act, the Bank may grant

temporary advances to the Federal Government in respect of temporary deficiency of

budget revenue at such rate of interest as the Bank may determine.

(2) The total amount of such advances outstanding shall not at any time exceed five per cent

of the previous year's actual revenue of the Federal Government.

(3) All Advances made pursuant to this section shall be repaid –

(a) as soon as possible and shall in any event be repayable by the end of the

Federal Government financial year in which they are granted and if such advances

remain unpaid at the end of the year, the power of the Bank to grant such further

advances in any subsequent years shall not be exercisable, unless the outstanding

advances have been repaid; and

(b) in such form as the Bank may determine provided that no repayment shall take

the form of a promissory note or such other promise to pay at a future date or

securitization by way of issuance of treasury bills, bonds, certificates or other forms

of security which is required to be underwritten by the Bank.

3.3 THE OBJECTIVES OF THE FSP AND THE DIRECTIVE PRINCIPLES OF STATE

POLICY

The above thrusts of the FSP do not have strong links with the economic objectives in S.16

of the Constitution under the Fundamental Objectives and Directive Principles of State

Policy. S.16 provides for a number of general issues but the most relevant and pointed part

of S.16 of the Constitution provides as follows:

(2) (d) that suitable and adequate shelter, suitable and adequate food, reasonable national

minimum living wage, old age care and pensions, unemployment and sick benefits and

welfare of the disabled are provided for all citizens.

There is nothing in the FSP and in the whole MTEF that addresses the imperatives

provided under the Fundamental Objectives and Directive Principles of State Policy found

in Chapter Two of the Constitution. Even when general policy statements are made, such

as the objective of enhancing job creation, no targets are set and no clear cut strategies are

enunciated.

3.4 OVERALL COVERAGE OF FSP

Essentially, the FSP covers most of the demands of the FRA; the few outstanding areas

include lending and investment.


Part Four

THE REVENUE AND EXPENDITURE FRAMEWORK

4.1 ESTIMATES OF AGGREGATE REVENUES FOR THE FEDERATION 2022-2024

Section 11(3) (c) (i) of the FRA, requires the MTEF to provide a Revenue and Expenditure

Framework setting out:

“the estimates of aggregate revenues for the Federation for each of the financial years in

the next three financial years, based on the predetermined Commodity Reference Price

adopted and tax revenue projections”.

Upon this demand, the MTEF bases its revenue projections on oil price and production as

well as the non-oil revenue baseline assumptions, most of which are tax based. Table 5

shows the medium term revenue projections for Federation Account revenues.


Table 5: Federation Account and VAT Revenues (2022-2024)

FISCAL ITEMS 2021 Budget

Passed by

NASS 2022 Proj.

2023 Proj.

2024 Proj.

Budget Oil Production Volume Net

Incremental Oil Production for

Repayment Arrears (mbpd)

1.86

1.88

2.23

2.22

Projected Budget Benchmark Price

(US$ per barrel)

40.00

57.00

57.00

55.00

Average Exchange Rate (N/US$)

379.0

410.15

410.15

410.15

NET FEDERATION ACCOUNT (MAIN

POOL)

6,772,148,183,209

10,519,239,717,127

13,864,798,242,891

14,767,515,253,606

Transfer to Police Trust Fund (0.5% of

Fed. Acct.)

41,908,119,186

52,596,198,586

310,554,169,487

363,313,790,195

NET FEDERATION ACCOUNT -

MAIN

POOL (after 0.5% transfer to Police

Trust Fund)

6,730,240,064,023

10,466,643,518,541

13,554,244,073,403

14,404,201,463,410

Net Oil Revenue after Costs,

Deductions & Derivation

4,146,428,644,688

6,507,790,422,312

9,153,869,764,786

8,652,691,974,196

Net Solid Minerals Revenue after

Derivation

5,464,729,697

6,011,202,666

6,612,322,933

7,273,555,226

Net Corporate Tax Distributable

1,405,604,726,453

1,874,850,814,324

2,198,543,496,579

2,417,014,498,120

Net Customs Revenue Distributable

1,047,978,550,179

1,719,828,043,369

1,876,259,987,600

2,068,620,127,352

Net Special Levies Distributable

124,763,413,007

148,397,663,459

318,958,501,506

1,258,601,308,516

Net Electronic Money Transfer Levy

209,765,372,411

241,230,178,273

289,476,213,927

Distribution

FGN's Share of Federation Account

(52.68%)

3,545,490,465,727

5,513,827,805,567

7,140,375,777,869

7,588,133,330,925

States' Share of Federation Account

(26.72%)

1,798,320,145,107

2,796,687,148,154

3,621,694,016,413

3,848,802,631,023

Local Govt.'s Share of Federation

Account (20.60%)

1,386,429,453,189

2,156,128,564,819

2,792,174,279,121

2,967,265,501,463

From Table 5, the Net Federation Account Main Pool Revenue is projected to increase by

55.3%, 31.8% and 6.5% respectively in 2022, 2023 and 2024. The 55.3% projected

between 2021 and 2022 appears like a quantum leap which may not materialise. It is

admitted that with a fairly low baseline in 2021 due to the lingering impact of the COVID 19

pandemic, there would be a marked increase in the first year after full resumption of

economic activities. But the increase may not be up to 55%.

The Net Oil Revenue after costs, deductions and derivation as a percentage of Net

Federation Account is 61.2%, 61.9%, 66.02% and 58.6% respectively in the years 2021,

2022, 2023 and 2024. This does not show an economy moving away from dependence on

oil revenue. Thus, the mantra of economic diversification seems not to be working. The

projected contribution of Solid Minerals Revenue after derivation to the Federation

Account is ridiculous and cannot be reflective of the value of the actual extracted solid

minerals. Solid minerals are projected to contribute 0.085%, 0.057%, 0.047% and 0.049%

in the years 2021, 2022, 2023, and 2024 respectively. This is not even up to 1% of

projected revenue per annum. With the quantum of mineral deposits available in the

country and the number of licences so far issued, it is clear that solid minerals resources is

not being properly brought into account and may even be fuelling terrorism and other

criminal activities through illegal mining.

CIT is expected to grow by 33%, 17% and 6% for the years 2022, 2023 and 2024. Customs

revenue is to grow by 64%, 9% and 10% for the years 2022, 2023 and 2023. VAT is

expected to grow by 33%, 9%, and 10% for the years 2022, 2023 and 2024 respectively.

CIT is to contribute 18%, 16% and 14% to Federation Account revenues for the years 2022,

2023 and 2024. Customs is to contribute 16%, 14% and 14% to the Federation Account in

the years 2022, 20213 and 2024. VAT is expected to contribute 22%, 18% and 18% in the

years 2022, 2023 and 2024. It is pertinent to note that recent developments in the case

between the Rivers State Government and FIRs may reconfigure expectations from VAT

because the judgement of the Federal High Court which has been appealed by FIRS



Total Federation Account

Distribution (Net) (100.00%)

6,730,240,064,023

10,466,643,518,541

13,554,244,073,403

14,404,201,463,410

FGN's' Share

of VAT Pool

Account (15%)

States' Share

of VAT Pool

Account (50%)

255,456,672,381

851,522,241,271 339,311,839,736

1,131,039,465,786 371,471,667,533

1,238,238,891,776 408,139,544,122

1,360,465,147,072

Local Govt.'s Share of VAT Pool

Account (35%)

596,065,568,889

791,727,626,050

866,767,224,243

952,325,602,950

Total VAT Pool Account Distribution

(Net) (100.00%)

1,703,044,482,541

2,262,078,931,572

2,476,477,783,552

2,720,930,294,144

hands over VAT collection to State Boards of Internal Revenue. The baseline assumptions

for CIT, Customs collections and VAT all have the inbuilt efficiency factor.

The revenue key baseline assumptions according to the MTEF are as follows: (1) Customs

collections are predicated on the CIF value of imports, applicable tariffs and an efficiency

factor; (2) Value Added Tax (VAT) is based on projected aggregate national consumption,

but taking account of vatable items and collection efficiency; set at 7.5% (3) Companies

Income Tax (CIT) is based on estimated nominal GDP, Companies' Profitability Ratio and

further improvement in efficiency.

4.2 FGN REVENUE FRAMEWORK

Table 6 shows FGN Revenue Framework in the medium term.


Table 6: Overview of FGN Revenue Framework

FISCAL ITEMS

2021 Budget

Passed by

NASS

2022 Proj.

2023 Proj.

2024 Proj.


Incremental Oil Production

for

Repayment

Arrears (mbpd)

1.86

1.88

2.23

2.22

Projected Budget Benchmark Price (US$

per barrel)

40.00

57.00

57.00

55.00

Average Exchange Rate (N/US$)

379.0

410.15

410.15

410.15

AMOUNT AVAILABLE FOR FGN BUDGET

(excluding GOEs retained revenue)

6,637,575,467,981

7,263,944,617,205

8,762,451,426,482

9,215,713,059,757

a

Share of Oil Revenue

2,011,017,892,674

3,156,278,354,821

4,439,626,835,921

4,196,555,607,485

b

Share of Dividend (NLNG)

208,540,960,000

184,030,182,000

189,661,046,400

94,830,523,200

c

Share of Minerals & Mining

2,650,393,903

2,915,433,293

3,206,976,622

3,527,674,285

d

Share of Non-Oil Taxes

1,488,924,372,031

2,132,083,163,179

2,477,681,452,754

3,166,884,669,164

Share of CIT

681,718,292,330

909,302,644,947

1,066,293,595,841

1,172,252,031,588

Share of VAT

238,426,227,556

316,691,050,420

346,706,889,697

380,930,241,180

Share of Customs

508,269,596,837

834,116,601,034

909,986,093,986

1,003,280,761,766

Share of Federation Acct. Levies

60,510,255,308

71,972,866,778

154,694,873,230

610,421,634,630

Share of Electronic Money Transfer Levy

(formerly called Stamp Duty)

500,000,000,000

29,367,152,138

36,184,526,741

43,421,432,089

e

Revenue from GOEs

2,173,860,133,098

2,039,567,627,394

2,232,114,703,577

2,341,258,774,100

f

GOEs Operating

Surplus (80% of which is

captured in Independent Revenue)

(825,023,025,138)

(944,298,935,002)

(814,226,892,523)

(661,031,281,755)

g

Independent Revenue

1,061,898,590,939

1,089,243,957,812

1,220,264,847,149

1,314,264,632,639

h

Transfers from Special Levies Accounts

300,000,000,000

300,000,000,000

300,000,000,000

300,000,000,000

i

Signature Bonus / Renewals / Early

Renewals

677,015,511,478

280,855,138,079

-

-

j

Domestic Recoveries + Assets + Fines

32,675,085,307

26,933,139,822

33,587,644,833

33,587,644,833

k Grants and Donor Funding

354,852,661,650 62,238,096,061 62,238,096,061 62,238,096,061

Amount available for FGN Budget

including GOEs

7,986,412,575,941 8,359,213,309,597 10,180,339,237,536 10,895,940,552,103


The amount available for FGN budget funding will increase by 9% between 2021 and

2022; 21% between 2022 and 2023 and 5% between 2023 and 2024. The share of oil

revenue to FGN overall revenue is projected at 43% in 2022, 51% in 2023 and 46% in

2024. This does not show an economy that is becoming less dependent on oil revenue.

Indeed, if the recently signed PIA is fully implemented and its expected fiscal outcomes are

realised, oil and gas revenue may increase as a proportion of retained revenue. To

determine whether the oil revenue projection is realistic, a review of FGN's Actual Share of

Oil Revenue (2015-2020) is presented in Table 7:


Table 7: FGN’s Actual Share of Oil Revenue (2015-2020)

Year Actual Oil Revenue

(Nbn)

Year Actual Oil Revenue

(Nbn)

2015 1,218.22 2018 1,960.85

2016 697.80 2019 1,373.18

2017 1,125.05 2020 1,409.23

Source: Q4 & Consolidated Budget Implementation Reports (2015-2020)

However, from the trajectory of actual oil revenues over the last six years, the oil revenue

projections appear very optimistic.

The share of non-oil taxes (VAT, CIT and Customs collection) to FGN overall revenue is

projected at 29% in 2022, 28% for 2023 and 34% for 2024. Table 8 shows FGN's actual

VAT share 2015-2020.

Table 8: FGN’s Share of Value Added Tax (2015-2020)

Year Actual VAT

(Nbn)

Year Actual VAT

(Nbn)

2015 104.66 2018 146.52

2016 109.00 2019 159.75

2017 130.05 2020 203.58


Comparing the projected VAT figures in Table 6 with the actuals over the last six years,

the projections are realistic. Table 9 shows FGN's actual CIT share.

Table 9: FGN’s Share of Company Income Tax (2015-2020)

Year Actual CIT

(NBn)

Year Actual CIT

(NBn)

2015 473.32 2018 660.13

2016 457.91 2019 694.17

2017 543.34 2020 639.14


Proposed Expenditure FrameworkTable 11:

Overview of FGN’s

FISCAL ITEMS

2021 Budget

Passed by

NASS

2022 Proj.

2023 Proj.

2024 Proj.


Incremental Oil Production for Repayment

Arrears (mbpd)

1.86

1.88

2.23

2.22

Projected Budget Benchmark Price (US$

per barrel) 40.00 57.00 57.00 55.00

Average Exchange Rate (N/US$) 379.0 410.15 410.15 410.15

STATUTORY TRANSFER

496,528,471,273

613,358,534,525

701,945,427,979

727,110,522,689

DEBT SERVICE

3,124,380,000,000

3,609,241,188,415

4,933,150,900,077

6,167,302,672,992

SINKING FUND 200,000,000,000

292,711,793,135

247,726,644,470

232,002,962,545

RECURRENT (NON-DEBT) 5,641,970,060,680

6,205,011,154,753

6,412,803,897,746

6,490,915,089,182

a Personnel Costs (MDAs) 3,046,464,689,489

3,469,178,444,276

3,573,253,797,604

3,573,253,797,604

b

Personnel Costs (GOEs)

701,162,016,535

750,038,374,499

779,313,511,833

833,990,459,384

c

d

Overheads

(MDAs)

Overheads

(GOEs)

325,878,658,542

312,081,710,125

335,655,018,298

261,269,575,246

335,655,018,298

302,338,675,825

335,655,018,298

325,772,919,710 e

Pensions, Gratuities & Retirees Benefits

504,191,130,679

567,002,149,814

584,012,214,308

584,012,214,308

Comparing the projected CIT figures in Table 6 with the actuals over the last six years,

the projections are realistic. Table 10 shows FGN's actual share of Customs

Collections.


Comparing the projected Customs figures in Table 6 with the actuals over the last six

years, the projections appear very optimistic. Independent revenue is improving and the

projection is 15% in 2022, 14% in 2023 and 14% in 2024. The implementation of the

proposals for blocking leakages in the MTEF and Finance Act of 2020 guarantees that

independent revenue projections is realisable. The proposed contribution of domestic

recoveries, assets and fines (not up to N34bn per year) is very low compared to the

trajectory of media reports of court ordered forfeitures at the behest of the anti-corruption

agencies.

4.3 FGN EXPENDITURE FRAMEWORK

Table 11 shows FGN's proposed Expenditure Framework.

Table 10: FGN’s Share of Customs (Imports, Exports and Fees)

Year Actual Customs

Revenue (Nbn)

Year Actual Customs

Revenue (Nbn)

2015 232.00 2018 296.74

2016 228.61 2019 357.26

2017 261.41 2020 394.82


e

Pensions, Gratuities & Retirees

Benefits

504,191,130,679

567,002,149,814

584,012,214,308

584,012,214,308

f

Other Service Wide Votes (including

GAVI/Immunization)

337,191,855,311

406,867,592,621

423,230,679,878

423,230,679,878

h

Presidential Amnesty Programme

65,000,000,000

65,000,000,000

65,000,000,000

65,000,000,000

SPECIAL INTERVENTIONS (Recurrent)

350,000,000,000

350,000,000,000

350,000,000,000

350,000,000,000

AGGREGATE CAPITAL EXPENDITURE

4,374,199,343,849

3,616,302,881,369

3,601,944,294,870

3,618,459,488,186

a

Capital Supplementation (see

appendix)

695,898,390,000

366,137,096,061

366,137,096,061

366,137,096,061

b Capital Expenditure in Statutory

Transfers

249,049,989,627

354,784,001,633

439,552,139,816

463,601,102,811

c Special Intervention Programme

(Capital)

10,000,000,000

10,000,000,000

10,000,000,000

10,000,000,000

d Amount Available for MDAs Capital

Expenditure

2,019,119,204,546

1,759,804,022,579

1,759,804,022,579

1,759,804,022,579

e GOEs Capital Expenditure 335,593,381,300

425,024,504,882

450,385,464,550

442,851,694,870

f

g

Grants and Donor Funded Projects Multi-lateral / Bi-lateral Project-tied

Loans

354,852,661,650

709,685,716,725

62,238,096,061

638,315,160,152

62,238,096,061

513,827,475,803

62,238,096,061

513,827,475,803

Capital Expenditure (Exclusive of

Transfers)

4,125,149,354,222

3,261,518,879,736

3,162,392,155,054

3,154,858,385,375

TOTAL FGN BUDGET (Excluding GOEs

& Project-tied Loans)

11,529,505,061,490

11,907,193,935,785

13,412,153,897,316

14,655,747,083,016 Total FGN Budget (including GOEs and

Project Tied Loans)

13,588,027,886,175

13,981,841,550,564

15,458,019,025,327

16,772,189,632,782


From Table 11, statutory transfers as a percentage of total FGN budget amounts to 4.31%,

5.15%, 5.23% and 4.96% for the years 2021, 2022, 2023 and 2024 respectively. Debt

service, including Sinking Funds to total FGN budget is 29%, 33%, 39% and 44%

respectively for the years 2021, 2022, 2023 and 2024. Recurrent non-debt expenditure

amounts to 48.94%, 52.11%, 47.81% and 44.29% respectively for the years 2021, 2022,

2023 and 2024. The high level personnel costs as a component of recurrent non debt

expenditure (66.4% in 2021; 68% in 2022; 67.9% in 2023 and 67.9% in 2024) is further

evidence of the imperative for reducing the cost of governance. Special interventions

funds amounts to 3.04%, 2.94%, 2.61% and 2.39% respectively for the years 2021, 20222,

2023 and 2024. Capital expenditure (excluding GOEs and statutory transfers) amounts to

32.87%, 23.82%, 20.22% and 18.50% for the years 2021, 2022, 2023 and 2024

respectively. It is noteworthy that debt service proposals are higher than capital

expenditure proposals.

4.4 FISCAL DEFICIT AND DEFICIT FINANCING

The MTEF states that:

“Budget deficit is projected to be N5.62trillion in 2021 up from N5.60 trillion in

2020. This represents 3.05% of estimated GDP, which is marginally above the

threshold of 3% stipulated in the Fiscal Responsibility Act (FRA), 2007. We

consider this level of deficit necessary to sustain our recovery from recession,


as well as ensure that critical ongoing infrastructure projects are completed. The deficit will be mainly financed by new foreign and domestic borrowings of N4.89trillion, N90.73billion from Privatization Proceeds, and N638.32billion draw downs on existing project-tied loans.

The FRA sets a deficit limit of 3% of the GDP. However, it provides exceptions including when the country is facing a war, pandemic/disaster/calamity, breakdown of public order/safety and any other public danger, etc. Table 12 provides the Deficit, Financing and Critical Ratios.

Table 12: Deficit, Financing and Critical Ratios

FISCAL ITEMS

2021 Budget

Passed by NASS

2022 Proj.

2023 Proj.

2024 Proj.

Budget Oil Production

Volume Net

Incremental Oil

Production for

Repayment

Arrears (mbpd)

1.86

1.88

2.23

2.22

Projected Budget

Benchmark Price (US$

per barrel)

40.00

57.00

57.00

55.00

Average Exchange

Rate (N/US$)

379.0

410.15

410.15

410.15

Fiscal Deficit

(excluding GOEs and

Project-tied Loans)

(4,891,929,593,509)

(4,643,249,318,580)

(4,649,702,470,834)

(5,440,034,023,259)

Total Fiscal Deficit

(including GOEs and

Project-tied Loans)

(5,601,615,310,234)

(5,622,628,240,967)

(5,277,679,787,790)

(5,876,249,080,680)

GDP

142,694,417,135,112

184,381,975,950,038

201,152,972,963,443

221,775,815,344,900

DEFICIT/GDP

(excluding GOEs and

Project-tied Loans)

(3.43%)

(2.52%)

(2.31%)

(2.45%)

DEFICIT/GDP

(including GOEs and

Project-tied Loans)

(3.93%)

(3.05%)

(2.62%)

(2.65%)

TOTAL FGN

EXPENDITURE

13,588,027,886,175

13,981,841,550,564

15,458,019,025,327

16,772,189,632,782

Total Non-Debt

Expenditure

10,263,647,886,175

10,079,888,569,014

10,277,141,480,779

10,372,883,997,245

Capital Expenditure as

% of Non-Debt

Expenditure

43%

36%

35%

35%

Capital Expenditure as

% of total FGN

Expenditure

32%

26%

23%

22%

Capital Expenditure

(Inclusive of Transfers,

but exclusive of GOEs

Capital & Project

tied

loans) as % of FGN

Expenditure

29%

21%

20%

18%

Recurrent Expenditure

as % of total FGN Exp

(incl. GOEs + Project-

tied Loans)

68% 74% 77% 78%

21 S.61 of the Finance Act 2020 amending S.12 of the FRA.

Recurrent Expenditure as % of

total FGN Exp (incl. GOEs +

Project-tied Loans)

68% 74% 77% 78%

Debt Service to Revenue Ratio

(incl. GOEs + Project-tied

Loans)

39% 43% 48% 57%

Deficit as % of FGN Revenue

(incl. GOEs + Project-tied

Loans)

70% 67% 52% 54%

ADDITIONAL FINANCING

a Sales of Government Property

-

-

-

-

b Privatization Proceeds

205,153,707,813

90,731,800,000

13,770,000,000

6,237,000,000

c Non-Oil Asset Sales

-

-

-

-

d Multi-lateral / Bi-lateral

Project-tied Loans

709,685,716,725

638,315,160,152

513,827,475,803

513,827,475,803

e New Borrowings

4,686,775,885,696

4,893,581,280,815

4,750,082,311,988

5,356,184,604,877

Domestic Borrowing

2,343,387,942,848

2,446,790,640,407

2,375,041,155,994

2,678,092,302,438

Foreign Borrowing

2,343,387,942,848

2,446,790,640,407

2,375,041,155,994

2,678,092,302,438

Source:

MTEF 2022-2024


Table 12 shows that Nigeria will continue borrowing in the medium term to finance

expenditure. Key highlights of Table 12 are as follows:

·The borrowing projections contradict the provisions of the Medium Term Debt

Management Strategy (MTDS) which sets a portfolio composition of 70% for

domestic debt and 30% for external debt. The trajectory is leading to a 50:50 ratio.

·Debt service to revenue ratio will be increasing in the medium term.

·Capital expenditure as a percentage of total FGN spending will be decreasing in the

medium term.

·Recurrent expenditure as a percentage of total FGN spending will be increasing in

the medium term.


Part Five

CONSOLIDATED DEBT STATEMENT, CONTIGENT LIABILITIES AND

QUASI FISCAL ACTIVITIES

5.1 OVERVIEW

Section 11 (3) (d) and (e) states that the MTEF shall contain:

d. A Consolidated Debt Statement setting out and describing the fiscal

significance of the debt liability of the Federal Government and measures

to reduce any such liability; and

e. Statement describing the nature and fiscal significance of contingent

liabilities and quasi-fiscal activities and measures to offset the

crystallization of such liabilities.

5.2 CONSOLIDATED DEBT STATEMENT

The MTEF states that:

“The ratio of Nigeria's Total Public Debt as a percentage of GDP remained sustainable at

21.61% as at December 31, 2020. Also, the ratio was below Nigeria's country-specific Debt

Limit of 40% (2020 to 2023), and below the revised WB/IMF's recommended threshold of 55%

for Nigeria's peer group, and ECOWAS convergence threshold of 70 percent”.

Before analysing the provisions of the MTEF further, it is imperative to detail the level of

indebtedness and resources dedicated to debt service between 2015 to 2020. Table 13

shows the trajectory of Nigeria's public debts 2015 to 2020.

Table 13: Nigeria’s Public Debt Stock 2015-2020

Year Debt Stock

(N)

Percentage

Change

2015 12,603,705.28

2016 17,360,009.58 37.74

2017 21,725,773.03 25.15

2018 24,387,071.74 12.25

2019 27,401,381.29 12.36

2020 32,915,514.85 20.12

Source: DMO (“DMO Annual Reports & Statement of Accounts” & "Nigeria's Total Public

Debt Stock as at each year’s end")

Table 13 shows that Nigeria's debt has been increasing in double digits year after year

since 2015. The highest increase occurred between 2015 and 2016. Between 2015 and

2020, Nigeria's public debt has increased by 161%. The debt has increased at a yearly

average of 37.74%. Table 14 shows the quantum of resources dedicated to debt service

2015-2020.


A total sum of N11,679,845,205,997 (N11.679tn) has been used for debt service for the

period 2015-2020. This is a yearly average debt service payment of N1,946,640,867,666

(N1.946tn). This can be compared to the total sum of N8.319tn, dedicated to

capital/developmental expenditure within the period which amounts to a yearly average 22

capital expenditure of N1.386tn. This is the factual background to the presentation of the

MTEF's position on consolidated debt.

The Consolidated Debt Statement affirms the Medium-Term Debt Management Strategy

(MTDS) 2020–2023 as the governing policy strategy. The MTEF states that the MTDS

focuses on the development of an optimal borrowing structure to fund the Government's

financing gap and needs, taking into consideration borrowing options, cost of borrowing

and the associated risks with borrowing. Under the MTDS, the proposed portfolio

composition is 70% for domestic debt and 30% for external debt while total debt as a ratio

of the GDP has been increased from 25% to 40%; average tenure of debt portfolio is a

minimum of ten years. It proposed up to 5% of the GDP in sovereign guarantees for private

companies executing public projects and; Promissory Notes is to be issued to settle

Government Arrears, Ways and Means Advance at the Central Bank of Nigeria (CBN), and

the Debt Stock of 5 State Owned Enterprises (SOEs).

It is pertinent to recall that the Consolidated Debt Statement setting out and describing the

fiscal significance of the debt liability of the Federal Government is expected to propose

measures to reduce any such liability. However, the MTEF's proposals are about

measures to increase the liability (debt as ratio of GDP increased from 25% to 40% and up

to 5% of GDP in sovereign guarantees for private companies executing public projects,

etc.). The MTEF had earlier stated under Monetary Policy Objectives and Strategy that:

Table 14: Quantum of Resources Dedicated to Debt Service (2015-2020)

Year Debt Service (N)

2015 953,620,000,000

2016 1,475,320,000,000 54.71

2017 1,841,345,727,206 24.81

2018 2,203,835,365,699 19.69

2019 2,254,014,113,092 2.28

2020 2,951,710,000,000 30.95

Source: BOF, Annual Federal Appropriation Acts

Percentage Change

22 Actual federal capital expenditure in 2015, 2016, 2017, 2018, 2019 and 2020 was N358.21bn, N1,191.97tn,

N1,439.97tn, N1,655.26tn, N2,229.24tn and N1,444.94tn respectively. Source: BOF, Budget Implementation

Reports (2015-2020).


“The rising level of domestic debt is another key factor that could threaten the

achievements of the targets on the macroeconomic indicators. The rising public debt has a

high likelihood to cause a waning investors' confidence in the domestic financial markets 23with far reaching implications on key variables such as interest rate and exchange rate”.

Even the earlier proposal under “Fiscal Policy Objectives and Strategies” to consider

setting other prudential limits like Debt Service/Revenue Ratio to ensure sustainability of

FGN's debts did not receive attention in this section. In 2020, FGN's retained revenue was

N3.937tn while debt service was N3.342tn being. Debt service was 84.8% of retained

revenue in 2020. Between January and May 2021, FGN retained revenue was N1.844tn

while the debt service was N1.802tn. Debt service was 97.7% of retained revenue in the

first five months of 2021.

In the final analysis, the Consolidated Debt Statement did not meet the requirement of

describing the fiscal significance of the debt liability, neither did it put forward measures to

reduce the liability. It only made a case for more borrowing in contradiction of the

requirements of the FRA.

There are alternative measures to reduce direct sovereign borrowing including borrowing

for GOEs and providing sovereign guarantees. The case for Public Private Partnerships

(PPPs) which was made in passing at page 31 of the MTEF should be mainstreamed and a

list of candidate projects prepared with a realistic timeline for implementation. Costs

benefit and sustainability analysis should precede sovereign borrowing to ensure that user

fees, cost recovery and revenues streams are identified and firmed up early to ensure that

projects funded from debts can pay off the debts in the medium term without reliance on the

consolidated revenue fund.

Furthermore, Nigeria is in a position to explore raising investment money through asset

backed securities especially in GOEs. GOE debts, even backed by a sovereign guarantee,

should strictly and specifically be paid from the proceeds of the GOEs investments and

transactions rather than the current practice of pooling them together with other

government debts and their payment coming from general government revenue. This will

promote GOE corporate accountability and best practices in corporate governance.

5.3 NATURE AND FISCAL SIGNIFICANCE OF CONTINGENT LIABILITIES AND

QUASI FISCAL ACTIVITIES

The MTEF by Section 11(3 (e) of the FRA should contain a statement describing the nature

and fiscal significance of contingent liabilities and quasi-fiscal activities and measures to

23At page 35 of the MTEF.


offset the crystallisation of such liabilities. The MTEF states that as at December 31, 2020,

the Contingent Liabilities of Government amounted to N4.37tn, representing 2.87% of

GDP, compared to N2.86trillion or 1.98% of GDP in 2019. The contingent liabilities are

expected to increase to N7.380tn in 2021; N7.449tn in 2022; N7.536Tn in 2023 and 24N7.706tn in 2024.

There was no presentation on measures to offset any such contingent liabilities if they

crystallise. Contingent liabilities are potential obligations that may crystallise at a future

date at the happening of definite event i.e. this could arise where guarantees of debt have

been made by FGN with regard to contract agreements for capital projects, aid, or

unplanned provisions to cover unpredictable expenses from disaster or sudden obliged

development needs.

The MTEF totally ignored the Quasi Fiscal Activities of FGN which include the fiscal

activities of government agencies that adds to the attainment of the broad macroeconomic

goals of the economy. Some of the developmental functions of the CBN are quasi fiscal in

nature and should have been captured in the MTEF. They include: Commercial Agriculture 25Credit Scheme that provides agricultural loans; the repayable COVID interventions/loans

26including Targeted Credit Facility, the Small and Medium Enterprises Credit Guarantee

27Scheme, the Anchor Borrowers Programme, etc.

24 See page 40 of the MTEF.25 N708.388bn has financed 652 project since inception- see keynote address presented by CBN Governor at

CBN Executive Seminar in Uyo, 2021.26N343.206bn has been disbursed to 726,298 beneficiaries- CBN Governor's presentation, supra.27N802.920bn has been spent by the CBN on 3,038,899 farmers across the 36 states of the Federation - CBN

Governor's presentation, supra.


Part Six

RECOMMENDATIONS

6.1 RECOMMENDATIONS

The following recommendations flow from this analysis of the MTEF.

1. MTEFs should be prepared on the strength of high level overarching national

policy instruments. A clear successor to the Economic Recovery and Growth

Plan should be articulated and made available to Nigerians. There are references

in the MTEF to a Medium Term National Development Plan (MTNDP) which is

neither in the public domain or a product of the popular participation by Nigerians.

2. The MTEF should be preceded by the preparation of MTSS of the respective

MDAs and spending agencies.

3. The MTEF should contain sectoral envelopes indicating the allocations to the

sectors over the medium term for their recurrent and capital votes.

4. The MTEF should be prepared by the Minister of Finance and ready for

consideration and endorsement of the EXCoF before the end of June in each

year as provided in S.14 (1) of the FRA.

5. The spirit of the FRA indicates transparency, accountability and popular

participation. Compulsory consultation of all the stakeholders before the

preparation of the MTEF is imperative and the fact and process of consultation

should be stated in the MTEF. Consultations allow wider inputs and ownership of

the process by the people.

6. The evaluation and analysis of the macroeconomic projections should not stop at

the last eighteen months but should extend in accordance with S.11 (3) (a) of the

FRA to the last three financial years.

7. For the measures stated in the MTEF to have a chance of success, FGN should

immediately and expeditiously take steps to end terrorism and insurgency in all

parts of Nigeria, specially to stop the criminal elements involved in kidnapping,

murder and preventing farmers from continued engagement in farming.

8. Monetary policy in the MTEF should seek harmonisation between monetary and

fiscal policies. Monetary policy should bridge the gap between lending and

deposit rates. Lending rate should not exceed deposit rate by more than 500

basis points.


9. The MTEF should document the underlying assumptions, facts and logic in

support of its macroeconomic projections. The projections should be in

consonance with the projections of high level overarching policy instruments or

show reasons supporting the deviation from the targets in the instruments.

10. To stem the continued devaluation of the naira against major international

currencies, reduce inflation and excess liquidity, CBN should avoid the perpetual

creation of new money. It should directly allocate foreign exchange earned from

crude oil sales to the three tiers of government as recommended in earlier policy

instruments.

11. Monetary policy should target a single, unified, market clearing exchange rate for

the Naira in the medium term.

12. The MTEF should contain attainable targets and strategies on creation of

employment, reduction of the trade deficit and improvements in capital

importation.

13. Poverty reduction should be built around a concentric circle of local value

addition, reducing imports through local production and patronage of Nigerian

made goods and services, a procurement system that creates local jobs and

builds local capacity, and a combination of employment, trade, fiscal policies etc.

14. Poverty reduction strategies should include formalising the informal sector,

universal and compulsory land titling and registration, addressing the needs of

millions of small holder farmers/entrepreneurs and service providers through

structured processes. This also holds the key to improved governmental

revenues through taxation and other revenue sources.

15. To provide resources for improving the right to health, health insurance should be

made compulsory and universal and to be paid for by anyone who earns the

minimum wage while government makes provisions for the unemployed.

16. To facilitate the creation of employment and access to livelihoods for youths, FGN

should immediately lift the ban on twitter and respect the digital rights of Nigerians

in accordance with the constitutional fundamental rights protection of freedom of

expression.

17. To facilitate greater investments and growth in the oil sector will inter alia require

the full implementation of the recently passed Petroleum Industry Act.

Furthermore, considering the huge sums spent on importing petroleum 1.

products, its contributions to the trade deficit and FGN's recent approval of taking

a stake in Dangote Refineries, any further impediments to the coming on stream

of the refinery should be expeditiously addressed.


18. The FRA which provides the framework for operating surplus should be amended

to provide sanctions for default in remitting operating surplus or supplying false

information to deny government of due revenues. Such amendment should also

incentivise the Fiscal Responsibility Commission (FRC or Commission) to

ensure the full collection of appropriate remittances calculated in accordance

with the Operating Surplus Template devised by the Commission.

19. FGN is encouraged to discontinue fuel and electricity subsidies to create the

fiscal space for funding of infrastructure and other national priority projects.

However, the prosecution of persons who have contributed to the rot in the

sectors should be undertaken expeditiously.

20. Savings in the cost of governance and removal of subsidies should be

channelled to capital expenditure in critical infrastructure backed by a cost

benefit analysis.

21. FGN should implement schemes requiring the conversion of tax concessions

into refundable tax credits. Tax expenditures should be capped as a percentage

of overall actual and collectible tax. It is recommended that not more than 20

percent of the available tax revenue be foregone as tax expenditure. The

opportunity for the review of extant tax expenditures is provided by the annual

Finance Act and the 2021 Finance Act should be the first.

22. Urgent measures are imperative for the recovery of sums due to the Federation

Account and the FGN as reported in annual reports of the Auditor General for the

Federation. Special procedures and court proceedings leading to the recovery of

these outstanding sums should be devised.

23. FGN should consider setting prudential limits like Debt Service/Revenue Ratio to

ensure sustainability of FGN's debts. It is recommended that in the medium term,

debt service should not exceed 50% of retained revenue.

24. There are alternative measures to reduce direct sovereign borrowing including

borrowing for GOEs and providing sovereign guarantees. The case for Public

Private Partnerships (PPPs) which was made in passing at page 31 of the MTEF

should be mainstreamed and a list of candidate projects prepared with a realistic

timeline for implementation.


25. Cost benefit and sustainability analysis should precede sovereign borrowing to

ensure that user fees, cost recovery and revenues stream are identified and

firmed up early to ensure that projects funded from debts can pay off the debts in

the medium term without reliance on the consolidated revenue fund.

26. Nigeria is in a position to explore raising investment money through asset backed

securities, especially in GOEs. GOE debts, even backed by a sovereign

guarantee, should strictly and specifically be paid from the proceeds of the GOEs

investments and revenue flows rather than the current practice of pooling them

together with other government debts and their payment coming from general

government revenue. This will promote GOEs corporate accountability and best

practices in corporate governance.


CSJ

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ABOUT CENTRE FOR SOCIAL JUSTICE (CSJ - RC: 737676)

Centre for Social Justice (CSJ) is a Nigerian Knowledge Institution. It is a non-governmental, non-profit and non-partisan organisation registered with the Corporate Affairs Commission as a Company Limited by Guarantee. It was established to introduce professionalism in civil society work and to use social entrepreneurship to provide cutting edge services to enhance and deepen economic, social and political change.

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ANALYSIS OF THE 2022-2021 MEDIUM

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