2023 Budget: Concerns over smooth implementation as Nigeria seeks buyers for oil, loses Chinese $22.8bn loan request

THERE are concerns over the smooth implementation of the 2023 national budget as indications emerged Nigeria could suffer impactfully from revenue shortfall due to its inability to get buyers for its crude oil, and the Chinese-Exim Bank rejecting its $22.8 billion loan request.  

Nigeria relies heavily on crude oil sales to run its economy, which quakes whenever there is a sharp drop in price of crude, or the country experiences hitches selling the product on the international market, as the situation currently is.

Globally respected business news media, Bloomberg, this week quoted four trade specialists in the West African oil market as saying that about 25 shipments of Nigeria’s crude for April loading were still searching for buyers. Each cargo was loaded with about a million barrels of crude.

Nigeria’s pitiable situation could be compounded by strikes in the French refining sector and maintenance at European plants. Nigeria refines her crude in European refineries, especially in Holland from where it imports petrol. There are fears that the maintenance round at the refineries could affect petrol import and trigger another round of scarcity in Nigeria.

France is one of Nigeria’s biggest customers, buying an average of 110,000 barrels daily of its oil over the past year. But France’s general oil imports have been dropping, halved actually in March as the strike over pension reforms worsened.

Nigerian news outfit, the Daily Post, quoted Viktor Katona, a lead crude analyst at Kpler (a Brussels-based global provider of commodities data, analytics, and market insight) as attributing Nigeria’s backlog to “a combination of higher freight costs, lower tanker availability – specifically into Europe – as well as lower overall demand for West Africa light sweet as crude from other regions is deluging markets.”

Implications on national budget

The Federal government has estimated a total revenue estimate of N10.49 trillion to fund the N21.83 trillion budget. Oil revenue was projected at N2.29 trillion, non-oil taxes were estimated at N2.43 trillion, and government independent revenues were projected at N2.62 trillion. Analysts believe the Nigerian economy would experience more distress if it failed to get the projected income from oil to fund its budget – with huge implications on deficit financing.

Minister of Finance acknowledged that 2023 budget to be funded largely by borrowing
Ahmed: notes part of the 2023 budget to be funded by borrowing

The Federal government has already designed the N11.34 trillion deficit in the budget to be financed through domestic and foreign borrowing sources, including multilateral loan drawdowns.

The ICIR checks have shown that the $22.8 billion Chinese-Exim Bank loan is part of the multilateral drawdowns, which rejection is putting Nigeria under fiscal pressure.

Nigeria’s Minister of Finance, Zainab Ahmed, disclosed that at N6.31 trillion, debt service is 29 per cent of government expenditure – which threatens Nigeria’s economic base.

Available records from the National Bureau of Statistics (NBS) showed that Nigeria’s crude oil sales rose by 46.41 per cent to push Nigeria’s total export to N26.79 trillion in 2022.

In 2022, crude oil sales totalled N21.09 trillion, a 46.41 per cent increase from N14.41 trillion in 2021. In 2022, crude oil accounted for 78.74 per cent of total exports, which rose by 41.72 per cent, from N18.91 trillion in 2021 to N26.79 trillion in 2022. Imports also rose by 22.77 per cent, from N20.84 trillion in 2021 to N25.59 trillion in 2022.

Analysts are seeing a sharp drop this year in Nigeria’s revenue trajectory, as experienced in 2022, if its inability to find substantial buyers for its crude oil rolled into months.

Some oil sector governance experts who commented on these concerns argued that the big elephant in the room is unsustainable subsidy in the power and petroleum sectors, which they said drains the economy, as well as the inability of the Nigeria National Petroleum Limited (NNPCLtd) to transit to a proper deregulated market.

“There’s a mini glut in Nigeria’s crude oil market, and that happens once in a while. It’s not something to worry about seriously. However, if you look at the last eight months, NNPCLtd hasn’t remitted to the Federation Account. That’s the major worry. Crude oil sales hasn’t helped us much because of subsidy, That is why we must encourage full implementation of the Petroleum Industry Act to enable economic growth of the sector,” an oil sector governance expert, Henry Ademola Adigun, told The ICIR.

Adigun admitted that Nigeria’s borrowing was not almost sustainable as it is exposed to higher risk exposure.

“We have to curb all wastages – subsidies in power, subsidies on petroleum have to go. If the government said we have only a revenue problem, that is not true because we have both debt and revenue problems. Our revenue can’t pay our debts and that’s why we rely on borrowing to fund the budget,” Adigun said.

There is the concern that the oil glut would have negative implications to the economy, since the budget is largely funded by crude oil benchmarks. To worsen that concern is the confirmation last week Tuesday by the Federal House of Representatives at plenary of the Chinese-Exim Bank’s rejection of the $22.8 billion loan request.

A large chunk of the loan facility was meant to facilitate completion of key rail infrastructure projects.

The ICIR learnt the loan rejection was not unconnected with alleged poor fiscal discipline by the Federal government and failure to follow some fiscal responsibility procedures when borrowing.

A development economist, Kelvin Emmanuel, described the rejection as both “a qualitative and quantitative assessment” of Nigeria’s fiscal position.

“The current sinking fund of 29 per cent that covers debt servicing and refinancing in violation of the interest on GDP, as covered in the Fiscal Responsibility Act of 2007, is disturbing. It doesn’t help that securitization of the Ways & Means at 9 per cent annual coupon for a 40-Year Government bond will further raise the sinking fund from 29 per cent to 43.8 per cent, which will wipe out nearly half of the savings derived from removing under-recovery on petrol subsidy,” Emmanuel said.

He added that to worsen the matter, “the Eurobonds market is currently out of reach because at Caa1 sovereign rating grade, the Debt Management Office (DMO) will not find off-takers for its Eurobond offer,” he said.

He stressed that the Nigerian economy was in dire straits, with huge concerns about poor fiscal and responsible management.

Another oil governance expert, Najim Animashaun, told The ICIR that inability to repay previous loans may have put the Chinese on red alert about Nigeria.

Animashaun said, “China has issues in-country as it is witnessing defaults by its big construction company, which has triggered manufacturing contraction. Nigeria again has not been seen as a serious economic manager in recent times in terms of debt repayment. It is also part of the reason for such rejection. The risk is huge.

“China also has to keep money because of the ongoing ‘political-war’ with America. So, it won’t lend without caution again. They have to keep money aside.”

Concerns could lead to more domestic borrowing






     

     

    Informed analysts remarked that the government may have to rely more on domestic borrowing to sustain the budget.

    DMO records showed that the government raised N3.3 trillion from the domestic market to finance the 2022 budget deficit. The Office is currently issuing bonds as part of measures to make up for budget deficit.

    The DMO, between 2017 and 2021, raised N362.57 billion sovereign Sukuk issued for finance infrastructure project nationwide.

    Sukuk is a project-tied borrowing that enables the government to raise funding for specific infrastructure projects like roads and bridges.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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