NIGERIAN President Muhammadu Buhari has again, exceed the threshold of the annual budget deficit as stipulated by the Fiscal Responsibility Act, 2007.
This was revealed during the 2021 Budget presentation tagged ‘Budget of Economic Recovery and Resilience’ to the National Assembly on Thursday.
Buhari said the 2021 budget deficit, inclusive of Government-Owned Enterprises and project-tied loans is projected at N5.20 trillion.
He added that the deficit represents 3.64 per cent of the estimated Gross Domestic Product (GDP) of the country.
“The 2021 Budget deficit (inclusive of Government-Owned Enterprises and project-tied loans), is projected at N5.20 trillion. This represents 3.64 per cent of estimated GDP, slightly above the 3 per cent threshold set by the Fiscal Responsibility Act, 2007,” said Buhari.
The President added that the deficit of the annual budget would be financed by new borrowings of N4.28 trillion and N205.15 billion.
He stated that N709.69 billion of the deficit would be gotten from drawdowns on multilateral and bilateral loans secured for specific projects and programmes.
“The deficit will be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes,” Buhari told the National Assembly.
However, Buhari said the exceeded threshold is due to the economic challenges posed by the COVID-19 pandemic.
“It is, however, to be noted that we still face the existential challenge of Coronavirus Pandemic and its aftermath; I believe that this provides a justification to exceed the threshold as provided for by this law, he further stated.
This is another breach of the fiscal responsibility act as Buhari had also exceeded the three per cent budget deficit threshold in the revised 2020 budget.
Reports from the Addendum to 2020-2022 of the Medium Term Expenditure Framework and Fiscal Strategy Paper Fiscal deficit stood at N4.58 trillion as passed by the National Assembly.
In the revised 2020 budget, the fiscal deficit rose from the 3 per cent threshold to 3.29 per cent of the GDP as stipulated by the law.
The Fiscal Responsibility Act, 2007 states that the ‘Aggregate expenditure and the aggregate amount appropriated by the National Assembly for each financial year shall not be more than the estimated aggregate revenue plus a deficit, not exceeding three per cent of the estimated Gross Domestic Product or any sustainable percentage as may be determined by the National Assembly for each financial year.
The FRA further reads that ‘Aggregate expenditure for the financial tear may exceed the ceiling imposed by the provisions of subsection (1) of this section if in the opinion of the president there is a clear and present threat to national security or sovereignty of the Federal Republic of Nigeria.
Should government be borrowing to balance deficit?
Speaking to The ICIR, Bongo Adi, an economic expert and lecturer at the Pan Atlantic University otherwise known as Lagos Business School, said the breach of the FRA budget deficit is ‘a good way to go’.
According to Adi, the President’s action is a step in the right way because the pandemic is a matter of national defence.
He added that national defence is beyond physical security, that the implications of the aftermath of COVID-19 are poverty which poses a security threat to the country.
Speaking on how the government intends to balance the budget deficit with borrowings, Adi said ‘the question is, should the government be borrowing’.
“Government needs to reconsider borrowing for infrastructures, they are facing two problems, one is the inability to collect revenue and the other is the rising debt profile of the country,” said Adi.
He advised that the government should restructure its mode of provision of physical infrastructures in the country.
“Why can’t we restructure the system? such that equity would be a preferable means of delivering capital projects.
“By restructuring, I don’t mean political restructuring, I am talking about government structure of means of physical infrastructure, creation of incentives such that we would prioritize equity instead of debt.
“Because the priority of government right now is about debt, that’s why the government is borrowing because they want to be the one that builds infrastructures.
“Instead of government being at the forefront of debt, they should create incentives so that private sectors would be the one to go and borrow money on their own terms, let them (private sectors) be the obligor, when they raise the fund, let them construct the infrastructure,” Adi stated.
“When you have a rail network, the government doesn’t need to build the track and bring the train, the government needs to open up, provide the track and let the private sector be the one to get the train, let them manage it to profitability so that government doesn’t have to burden itself with too many things,” the economic expert advised.
He said that what the government should do is be the regulator of financially sustainable projects and let the private sectors be in charge of getting the fund.
Adi further stated that Nigeria is doing badly in terms of mopping up revenue to finance its budget as well as sustain the economy of the country.
“‘It is not just about raising the fund, it is about setting in process, setting appropriate and efficient mechanisms to ramp up the revenue collection ability of the government.
“As it is currently, I think we are among the most inefficient countries when it comes to revenue mop-up, our tax effort is among the lowest if not the lowest in Africa.
“We are facing a lot of challenges as citizens but as it is, we don’t really have much of a choice, we just have to find a way because if people don’t pay tax, the government finds it difficult to create the jobs.
Seyi Kolawole, a finance expert and Research Analyst with the NASD Security Exchange during a telephone interview with The ICIR said it is not about exceeding the threshold rather it is about what the government commits the fund to.
It could be a good thing, obviously, the government has a lot it wants to do that’s why they have a big expenditure than the threshold and I think the COVID-19 pandemic has opened their eyes to probably a number of the key sectors the government has to improve upon,” Kolawole said.
He added that Healthcare is the most of them all stating that a significant part of the budget should be focused on growing other sectors like the agricultural sector.
“For instance, I understand we close the border for a while and that has forced us to look internally, so I’m sure we still need to look at other sectors.
“Like the general health care, because if we look at this year, we will realize that a lot of people could not access quality health and it was even made worse because the politicians were unable to travel out as well, so we come to realize that a number of hospitals were overwhelmed due to the COVID-19 pandemic,” he stated.
He highlighted the agricultural sector, health sector and funding for micro, small and medium enterprises as aspects that should constitute a large part of the budget.
“For me, if this additional expenditure will be insured on these different aspects I spoke about then I think it’s a good thing for Nigeria,” he added.