President Bola Ahmed Tinubu, on Wednesday, presented his first annual budget proposal with a total spending outlay of N27.5 trillion ($31.3 billion) for 2024. The projected expenditure is about 21 per cent higher than the 2023 budget.
Besides other issues, the level of deficit – projected at N9.18 trillion or one-third of the budget – has renewed the old debate about the country’s debt sustainability, high cost of debt service and the need for probity, as well as fiscal discipline. The deficit, which the President said would be 90 per cent funded by fresh borrowings, is 3.88 per cent of the gross domestic product (GDP) – a breach of the three per cent cap allowed by the country’s Fiscal Responsibility Act, a law that seeks to reduce fiscal risks and instil discipline in public financing. Clearly, the Tinubu administration has failed the first major test of its commitment to fiscal discipline.
Further, on assumption of office, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, a long-standing member of the President’s inner circle, told curious Nigerians that the administration would not rely on borrowings. The 2024 budget is another clear breach of promise.
Tortuous experience with public debt
But the debt issue goes beyond the sophistry of an unattainable political promise. In October 2005, Nigeria and the Paris Club announced a final agreement of $18 billion in debt relief for the country to be declared debt-free of its $30.4 billion external debt. The $12 billion the government paid came at an opportunity cost – lower investment in health, education, transport infrastructure and power.
Sadly, more debts were accumulated. Those who have deep knowledge about debt accumulation said the proceeds were mostly spent on enriching a few individuals under the guise of white-elephant projects and dubious procurements. For instance, the maintenance of Kainji Dam, a project delivered with the first external debt of $82 million obtained by Nigeria, has remained a cesspit of corruption. Whereas the infrastructure has remained sub-optimal, funds that would have been spent revamping the comatose power sector were spent offsetting the loan and many other similar ones.
One outcome of unproductive debts is the billions of naira Nigerians spend on self-generated power yearly, the dozens of manufacturing companies that close shops on account of unaffordable energy costs every year, and the thousands of jobs lost to the challenges. As the cost of energy spiked in 2022, for example, Nigerian manufacturers spent N144.5 billion on self-generated power, a sharp increase of 123 per cent above the N77.2 billion spent the previous year.
Like Buhari, like Tinubu
Under former President Muhammadu Buhari, the yearly fiscal deficit ballooned from N0.88 trillion to 13.78 trillion, leaving the country in a strait. To plug the hole, the Buhari administration went on a borrowing spree, raising the national debts from N12.06 trillion in 2015 when he took the reins to N87.4 trillion (over 600 per cent) at the end of its tenure.
Not surprisingly, the country has been painfully paying for the accumulated debts, with over 80 kobo out of every naira (80 per cent) the Nigerian government earns going into debt interest payment. This year, the debt service-to-revenue ratio improved to 67 per cent. But the amount spent remained extremely high when weighed against the overall spending (which stood at N12.7 trillion) and the meagre N1.5 trillion that went into capital projects (roads, power, rail, health and education facilities) – areas which have a direct impact on citizens. In other words, what went into critical infrastructure was a mere quarter of the amount paid to debtors as the cost of funds.
When debt servicing is prioritised
In 2024, the Nigerian government intends to spend N8.25 trillion or 30 per cent of the projected total expenditure on service debt, with dire consequences for social services. The amount is only about five per cent higher than the estimated N8.7 trillion capital expenditure. Still, the challenge with capital expenditure, the only part of the budget that benefits the broader populace, is more about its misuse than its lean size. Each time there is a revenue shock, the government dips its hand in the capital votes to meet its obligations to debtors and civil servants at the expense of infrastructure and social spending.
The 2023 budget is an example of how the capital budget underperforms at the expense of other components of the expenditure. The amount released for capital projects in the first three quarters, for instance, was less than one-third of the pro rata N4.73 trillion estimates for the period. On the other hand, the actual cost of debt service was about N1 trillion higher than the pro rata N4.8 trillion earmarked for the government’s external and domestic debt holders.
For a country whose debt service is projected to hit 160 per cent of revenue in 2027, one would think it is time for some restraint. Sadly, the 2024 budget shows the government’s debt appetite is not cooling – a situation that has raised grave concerns about Tibubu’s commitment to fiscal discipline.
Ahead of last week’s budget presentation, the Socio-Economic Rights and Accountability Project wrote the World Bank, demanding the suspension of loans to some Nigerian state governments for alleged misappropriation of proceeds of past advances. The letter explains the fears of millions of Nigerians – that as multilateral and bilateral organisations keep indulging the government, at all levels, in debt addiction, the poverty level of ordinary citizens who should be the ultimate beneficiaries of the facilities increases.
And it is even worse that the mark-up in the proposed budget is a mere illusion. At its face value, the figures presume that the government will spend much more than it ever did. But that is as far as the logic could be stretched. In real terms, the N22.65 trillion budget of 2023, which was equivalent to $48 billion at the early phase of its implementation, is $16.7 billion or 34 per cent less than the spending projection of 2024.
That is only in dollar terms. The current headline inflation and the projected future path of inflation have also taken a chunk of the value. Hence, with the current inflation rate (27.3 per cent), the real value of the proposed 2024 budget is about N20 trillion. What does this imply? It means the 2024 budget is, in real sense, smaller than that of 2023, given the dwindling purchasing power of the naira.
Overall, the budget may not offer any breather. Rising inflation, an unbridled appetite for more loans, and the unbearable cost of interest payments portends more pains for the poor masses under the Tinubu administration.