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Nigeria Says Incoming Administration to Inherit N77trn Debt

The country lost N6trn to tax incentives in 2021, moves to phase out pioneer incentives.

Nigeria’s federal government has revealed that the incoming administration would inherit about N77 trillion debt by the time President Muhammadu Buhari’s tenure ends in May next year. Director General of the Debt Management Office (DMO), Ms. Patience Oniha, disclosed this Wednesday in Abuja while fielding questions from journalists at the public presentation and breakdown of the highlights of the 2023 Appropriation Act.

The National Assembly recently approved the sum of N819.5 billion as supplementary budget for 2022.

In another letter, the president had also informed the lawmakers that the government would take another N1 trillion loan from the Central Bank of Nigeria (CBN) through Ways and Means. The additional N1 trillion would take the total Ways and Means Advances from the CBN to N23 trillion, which the government seeks to convert to bonds.

But Oniha explained that the move by the federal government to securitise the loans (Ways and Means) from the central bank would drive up the debt to about N77 trillion. 

Although data released by the DMO had put Nigeria’s public debt at N44.06 trillion as at third quarter 2022, the federal government plans to further borrow to finance its supplementary budget as well as the 2023 budget.

Oniha explained, “There are a lot of discussions on the Ways and Means. In addition to the significant cost saving in loan service we would get by securitising it, there is an element of transparency in the sense that it is now reflected in the public debt stock.

“Once it is passed by the National Assembly, it means we will be seeing that figure included in the public debt. You will see a significant increase in public debt to N77 trillion.

“The other area of the debt stock we are trying to highlight is to say the debt stock is also growing from the issuance of promissory notes, which are not true borrowing as such by the government.”

Earlier, Minister of Finance, Budget and National Planning, Zainab Ahmed, said when the Ways and Means gets legislative backing, it would help reduce the current interest on it to about nine per cent, while also stretching repayment period to about 40 years.

Ahmed said at the moment, the Ways and Means was running at interest rates averaging 18.5 per cent.

She explained, “Currently, the Ways and Means is running interest rates, which today is averaging 18.5 per cent. That’s a very, very harvest, so if this is not affordable, the interest rates accruing again and adding to the Ways and Means anything from N1.8 trillion to N2.2 trillion. So, that will be the consequence.

“I’m sure they will understand. So, once that approval is given, it will benefit from a lower interest cost of nine per cent and will benefit from a stretched initiated plan of 40 years with a three- year moratorium which will provide very significant relief to the federal government.”

Ahmed reiterated that Nigeria was not planning to restructure its debt, just as she said the country was committed to meeting its domestic and external debt obligations.

She stressed that Nigeria would, however, continue to utilise appropriate debt management tools to streamline the cost and risk profile in the debt portfolio, including through concessional loans, spreading out of debt maturities to avoid bunching, and re-profiling of the debt maturities by refinancing short-term debt using long-term debt instruments.

The minister revealed that the federal government lost N6 trillion to various tax incentives and waivers in 2021. To this end, she said the federal government would be phase out the Integrated Corporate Income Tax, otherwise known as Pioneer Tax Incentives, for industries that had grown in the 2023 Appropriation Act.

Buhari had on Tuesday signed the N21.83 trillion 2023 appropriation bill into law. But the president deferred the signing of the Finance Bill 2022, which was still being reviewed, especially over its conflicts with the fiscal term of the Petroleum Industry Act (PIA). The proposed Finance Bill was said to have taken away all concessions given by the PIA. For instance, it disincentivised investments in the petroleum sector, leading to massive protest by the international oil companies (IOCs), especially in the area of gas flaring.

But Ahmed noted that even though phasing out the incentive won’t be a popular decision, it became imperative in order to ensure that infant industries, especially from the information technology sector, benefited from the policy.

The minister assured that the president would be signing the Finance Bill into law in a couple of days.

She stated, “We are phasing out Integrated Corporate Income Tax incentives for mature industries and maybe people popularly just understand when you see pioneer tax.

“We have tax provisions that are dated to 1958 or something. So there are some industries from that schedule at that time that were classified as infant and we are saying they have grown and need to exit. And we need to bring in new infant industries to benefit. Such industries are industries that are now growing in the IT sector that didn’t exist that need these opportunities. And we are glad that the Start-up Act has also emphasised that.

“So, we will be exiting some industries from the incentive of pioneer tax. We are aware that this is not going to be a very popular thing to do, but it is a must do for us.

“As at 2021, the tax expenditure of government was N6 trillion. That is, N6 trillion in revenue in terms of different kinds of tax incentives, tax holidays, exemptions of import duties, different kinds of waivers, and revenue.

“When we appreciate the need to provide incentives to encourage industry, we have to create a balance that we’re not giving out too much without getting much.”

The minister explained that the 2023 projections deviated somewhat from the National Development Plan of 2021-2025. She stressed that this was because government had to adjust to the current economic realities, as well as the modified medium term outlook.

She said, for instance, the real GDP was projected to be 3.75 per cent in 2022, compared to 4.37 per cent that the government had projected in the Medium Term Development Plan.

Growth was expected to moderate to 3.3 per cent in 2024, before it picks up again to 3.46 per cent in 2025.

The minister said inflation rate was projected to average 17.16 percent in 2023, adding, “So we are expecting inflation to moderate and begin to go down and by the end of 2023, it should average 17.16 per cent and also further decline to 14.93 percent. This is, of course, our projection.”

Ahmed said the government hoped that the Russia/Ukraine war would abate and that the global economic growth projection would improve or at least stay under current assumption level and does not decline.

She revealed, “The projected fiscal outcomes in the 2023 budget is based on petroleum subsidy reform ratio and that is to say in the 2023 framework, we had assumed and the National Assembly had approved that petrol subsidy will remain up to the middle of 2023 based on the 18 months extension announced early in 2022.

“In the 2023 budget framework, it is assumed that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2022. In this regard, only N3.36 trillion has been provided for PMS subsidy.”

Ahmed also assured that there would be tighter enforcement of the performance management framework for Government-Owned Enterprises (GOEs) in order to increase operating surplus /dividend remittances in 2023.

Ahmed noted, “Total revenue available to fund the 2023 budget is estimated at N10.49 trillion. This includes the gross revenues of 63 GOEs totalling N3.87 trillion.

“Of this, oil revenue share is projected at N2.29 trillion, non-oil taxes are estimated at N243 trillion, and independent revenues are projected to be N2.62 trillion. Other revenues total N762 billion. In aggregate, 22 per cent of projected revenues is expected from oil-related sources, while 78 per cent is to be earned from non-oil sources.”

The minister pointed out that the overall budget deficit was N11.34 trillion for 2023, which represents 5.03 per cent of GDP.

She said the budget deficit would be financed mainly by borrowing from domestic sources the sum of N7.04 trillion; foreign sources, N1.76 trillion; multilateral loan drawdowns, N1.77 billion; and privatisation proceeds, N206.18 billion

“The gap between the revenue, additional financing and total expenditure, amounting to N553.46 billion is expected to be financed by additional revenue from spectrum fees and tax on the maritime sector,” Ahmed explained.

80.6% of revenue spent on debt service in 11 months

Ahmed revealed that the federal government spent a total of N5.24 trillion on debt servicing between January and November 2022, out of its N6.5 trillion retained revenue for the same period.

The amount puts the country’s debt service-to-revenue ratio at 80.6 percent for the period under review, a figure far above World Bank’s suggested 22.5 per cent for low-income countries, like Nigeria.

Ahmed said the federal government’s share of oil revenues generated within the period was N586.71 billion (representing 35.7 percent performance), while non-oil tax revenues totalled N2.09 trillion, a performance of 123.3 per cent.

She said Companies’ Income Tax (CIT) and Value Added Tax (VAT) collections were N1.08 trillion and N295.2 billion, RESPECTIVELY, representing 158.6 per cent and 124.3 per cent of their respective targets.

According to Ahmed, customs collections (comprising import duties, excise, fees, and special levies) exceeded the target by N15.42 billion (i.e., 102 per cent performance). She added that other revenues amounted to N3.72 trillion, of which independent revenue was N1.32 trillion.

On the expenditure side, the minister said as at the end of November 2022, the government had spent a total of N12.87 trillion, out of which N1.88 trillion was released for capital expenditure.

On non-oil sources, Ahmed said the overall budget deficit for the 2023 budget was N11.34 trillion, representing 5.03 per cent of the country’s Gross Domestic Product (GDP).

Adedayo Akinwale in Abuja

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