Ways That FG Intends To Reduce Governance Expenses
The federal government claims to have planned a number of cost-cutting initiatives to support good governance, such as a potential review of the Public Procurement Act of 2007 in an effort to increase effectiveness, get better value for the money, and lessen corruption.
Additionally, it cut the deficit in its own budget for 2024 to N9.05 trillion, which is 22% less than the N11.60 trillion planned for 2023. It also stated that it plans to maintain the current amount, which is below the 3 percent level outlined in the 2007 Fiscal Responsibility Act (FRA).
About 53% of its total revenue and 3.83 percent of the predicted GDP are represented by the proposed deficit.
The anticipated N26.01 trillion that the federal government plans to spend in 2024 is 14.8%, or around N3.36 trillion, more than the equal N22.65 trillion that is projected to be spent in 2023 (which includes the N819.54 billion supplemental provision).
N8.25 trillion and N243 billion, respectively, have been set aside from the budget for debt service and sinking funds to settle maturing debts issued to creditors and local contractors.
This was revealed on Monday during the public consultation for the draught FGN 2023–2026 Medium Term Fiscal Framework and Fiscal Strategy Paper (MTEF/FSP), which was conducted in Abuja as part of the ongoing Nigeria Economic Summit (NES#29). Ben Akabueze is the Director General of the Federation's Budget.
The first MTEF/FSP under President Tinubu's leadership, it shows the government's approach to tackling the major fiscal and policy issues of the day.
In particular, it offers a thorough framework for responsible fiscal management and resource distribution in the face of significant obstacles in domestic revenue mobilisation, worries about the sustainability of public debt, high inflation, and the detrimental effects of insecurity on the domestic economy, among other issues.
BusinessDay carried a story on Monday on how the Public Procurement Act of 2007's ineffective implementation has prevented government spending from becoming more prudent and efficient.
In his speech, Akabueze mentioned that the government also wants to improve sustainability and discipline in ongoing expenses, particularly in the area of people.
Additionally, it would stipulate that before being allowed into the budgets of Ministries, Departments, and Agencies (MDAs), all capital expenditures beyond a specific level must undergo a viability assessment and cost-benefit analysis.
Another tactic to improve spending efficiency is to set spending caps for specific expenses and compile a benchmark pricing list.
In the future, designated taxes and specific revenue sources will be associated with certain vital expenditures, particularly those that have multiplier and long-term consequences.
In 2024, the government would make equal efforts to attain and maintain fully deregulated petroleum product pricing as well as cost-reflective electricity rates.
Over a number of years, fiscal deficits have often exceeded both the 3% criterion and the amount projected, which has been regretted by Akabueze. The reasons for this include extrabudgetary spending, overly optimistic income estimates, and a performance management structure that is inadequate for GOEs.
Due to this, he claims, the government has been obliged to depend more and more on borrowing, particularly the costly and inflationary Ways & Means advances made by the Central Bank of Nigeria, which totaled N22.7 trillion prior to President Buhari's administration.
He admitted that stricter revenue estimates would aid in the reduction of fiscal irresponsibility because expenditures based on inflated revenue projections exacerbate budget deficits by undermining the validity of the budget itself.
He admitted that stricter revenue estimates would aid in the reduction of fiscal irresponsibility because expenditures based on inflated revenue projections exacerbate budget deficits by undermining the validity of the budget itself.
He states that the government will make sure that every expense item in the budget is in line with the established national priorities, that it will apply a stricter policy when granting capital to agencies and approving capital projects into the budget, and that it will improve the ability of agencies to carry out their tasks.
The government would also try to improve budget implementation and monitoring procedures, boost debt sustainability analysis and management framework, and increase expenditure controls and oversight systems.
The 2024, 2025, and 2026 budgets, as stated in the draught MTEF/FSP, are based on an oil benchmark of $73.96/barrel, $73.76/barrel, and $69.90/barrel, respectively. Finance Minister Wale Edun and Coordinating Minister for the Economy had previously informed BusinessDay that these figures were "conservative."
Additionally, the government plans to produce 1.78 million barrels of oil per day, 1.80 million barrels per day, and 1.81 million barrels per day over the course of three years.
"As the security situation is expected to improve, the crude oil forecast assumes that all evacuation lines will be operational," stated Akabueze.
The 2024, 2025, and 2026 exchange rates are N700/$, N665.61/$, and N669.79, respectively.
Additionally, the government anticipates that inflation would average 21.4% in 2024 before falling to 20.3% in 2025 and 18.6% in 2026.
For the next three years, the economy is expected to grow at 3.76 percent, 4.22 percent, and 4.78 percent, respectively.
This is due to the fact that the total revenue from the federation account is expected to rise from the N11.86 trillion predicted for 2023 to N24.54 trillion in 2024. Projected values for this include N20.70 trillion for the main pool, N3.66 trillion for the VAT pool, and N174.26 billion for the EMTL.
In order to increase revenue, the government has promised not to raise taxes but to increase collection efficiency. It will also make sure that its own agencies, or GOEs, deposit up to 50% of their earnings into the federations account on time.
"The increase in projected revenue inflows is mainly due to the exchange rate effects, higher oil production projection, and the removal of subsidy," stated Akabueze, who was speaking on behalf of Minister of Budget and National Planning Abubakar Atiku Bagudu.
However, the estimated revenue for the federal government in 2024 is N16.96 trillion, or 54% more than the 2023 Budget, at N5.91 trillion.
N6.95 trillion, or 41%, of the total revenue is anticipated to come from sources tied to oil. The remaining N10.01 trillion must come from sources other than oil.
Additionally, it is anticipated that the federal government's portion of non-oil tax revenue will rise to N3.52 trillion from N2.43 trillion in 2023, while its portion of mineral and mining revenue will decrease to N4.56 billion from N3.64 billion in 2023.
While the projects supported by grants and donors will bring in approximately N639.92 billion, the prediction for independent revenue has been lowered to N1.91 trillion, down from N3.17 trillion.
In addition, the government anticipates receiving N316.68 billion in dividend payments from the Bank of Industry, Development Bank of Nigeria, Galaxy Backbone, and Bank of Agriculture, as opposed to N81.79 billion in 2023.
N736.04 billion is the estimated total of other income, which include FGN's portion of the Oil Price Royalty, the Education Tax, the Electronic Money Transfer Levy, and the withdrawals from special accounts.
In addition, the federal government projects total expenditures of N26.01 trillion, which is 14.8%, or around N3.36 trillion, more than its forecast of N22.65 trillion for 2023 (with the N819.54 billion supplemental provision).
Statutory transfers of N1.30 trillion and non-debt recurring expenses totaling N10.26 trillion are included in the projected spending for 2024.
Debt service and sinking fund contributions totaling N8.25 trillion and N243 billion, respectively, are intended to retire maturing bonds issued to local creditors and contractors.
The entire amount allocated for personnel and pension costs is N6.78 trillion (including N1.02 trillion for GOEs), representing a 15% increase of N904.49 billion from the 2023 estimate. This is 40% of the total expected revenue in 2024.
The 2024 budget's total allotment for capital expenditures is N6.87 trillion, which is almost 5% less than the N7.27 trillion allotted for 2023 and accounts for 26% of total spending.
As a result, the estimated budget deficit of the federal government for 2024 is N9.05 trillion, a decrease of 22% from the N11.60 trillion budgeted for 2023. About 53% of all FGN revenues and 3.83 percent of the projected GDP are represented by the proposed deficit.
A large portion of the predicted fiscal deficit in 2024 can be attributed to the proposed universal pay review for federal employees, greater debt service costs, and increased pension obligations.
The predicted level of deficit, at 3.83 percent, is considerably lower than the 5.1% percent level in 2023 even if it is greater than the 3 percent threshold set forth in the Fiscal Responsibility Act (FRA), 2007.
Though the DG budget guaranteed the government's commitment to maintain the deficit under the 3 percent cap moving forward, the FRA 2007 permits the government to surpass the 3 percent threshold if warranted by threats to national security.
He claims that the proposed 2024–2026 MTEF/FSP is a realistic, well-balanced, and forward-looking fiscal framework that addresses significant fiscal issues and fosters transparency while laying the groundwork for inclusive growth, resilience, and sustainable development.
He added that it creates the groundwork for sustainable development over the following three years and strikes a critical balance between fiscal discipline and fostering economic growth.
In the intermediate run, we plan to execute strategies for increased tax administration and revenue diversification to improve fiscal sustainability, lessen reliance on erratic revenue streams, and foster fiscal stability.
"The country's debt will be managed at manageable levels while funding important projects and programmes, as the current administration is committed to managing and monitoring debt sustainability," he emphasised.
