Nigeria’s deficit budgeting must be controlled

At the end of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) meeting on July 25, Godwin Emefiele, CBN Governor, disclosed that the Federal Government has incurred a deficit of N2.5 trillion as at June. This deficit position has already overshot the planned N2.3 trillion that the FG budgeted for 2017. At this rate, we are looking at a potential deficit in excess of N4 trillion in 2017.

A fiscal deficit is the difference between revenues and expenditure. It is a deficit when expenditure exceeds revenues. This means that the government is spending more money than it is earning.

In fact, BusinessDay had earlier reported that the FG deficit hit a 9-year high in the first quarter of 2017 when the government recorded a deficit of N1.1 trillion, which is a 101 percent increase, compared to the first quarter of 2016, when the government incurred a spending deficit of N531 billion.

Compared to the same period of 2014 and 2015, the first quarter represents a 724 percent and 67 percent increase in deficit spending.

Apparently, revenues have fallen far short of the FG’s projections in 2017. Figures from the CBN clearly show that the FG has not been able to meet its revenue targets. The Federal Government’s retained revenue for the first quarter of 2017 based on provisional CBN data, amounted to N608.11 billion. This was below the proportionate quarterly budget estimate and the receipts in the preceding quarter by 9.9 and 31.0   percent respectively.

Of the total revenue, the Federation Account accounted for 58.6 percent, while Federal Government Independent Revenue, VAT, and others (NNPC Refund and Exchange Gain) accounted for 12.8, 10.9, 9.3, 5.3 and 3.1 per cent, respectively.

While revenues have struggled, the FG has kept the pedal on spending, hence the rising deficit. Sadly, a good chunk of the expenditure is still going into running the bureaucracy of governance, with about 63 percent the first quarter expenditure consumed by overheads, salaries and wages.

To sustain the high expenditure level, the FG has had to borrow significantly, almost N1 trillion from the domestic markets in the first half of the year, in addition to US$1.8 billion from the international markets.

Not surprisingly, the significant borrowing from the domestic market is already crowding out the private sector from the credit market. Once more, the CBN figures shows that while credit to government expanded by 5.91 percent in the first half of 2017, credit to the private sector actually contracted by 0.02 percent.

Banks are expanding lending to the government at the expense of credit to the real sector of the economy.  What is even more worrying is that the better proportion of the money going to the government is supporting bureaucracy more than investments, which is a double jeopardy for the economy.

If the pace of spending noticed in the first half of the year is sustained in the second half of the year, the country is going to end up recording its biggest deficit in history, even though attaining that record now looks irreversible.

This is all happening at a time that the government claims to be engaging in cost cutting measures which definitely is not showing in the figures being released. We admit that the government is making efforts to improve revenues but it is also very risky to borrow in anticipation of the expected improvement revenues.

The country could easily find itself in a situation where debt levels become unsustainable if the expected revenues do not come as quickly, or in the magnitude envisaged. An excessive debt burden easily stifles economic growth and could be difficult to get out of. There are viable options to reduce the government deficit, including reducing the number of government parastatals, privatisation, PPP, concessioning and asset sales. The government should explore these options and stop digging the country into a debt hole.


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The post Nigeria’s deficit budgeting must be controlled appeared first on Nigeria Today.

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Author: Editorial