THE cost of debt servicing for the first four months of the current year, 2022, exceeded revenue earned even as the Federal Government said it would spend N6.7trillion on fuel subsidy in 2023.

This was disclosed by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed at the public consultation on the draft 2023 – 2025 Medium Term Fiscal Framework/Fiscal Strategy Paper (MTFF/FSP) on Thursday in Abuja.

In the overview of the fiscal performance for the first quarter of 2022, Mrs Ahmed pointed out that the federal government’s total Revenue for the period was N1.63 trillion, while the debt service gulped N1.94 trillion.

She added that urgent action was needed to address revenue underperformance and expenditure efficiency at national and sub-national levels.

“The aggregate expenditure for 2022 is estimated at N17.32 trillion, with a prorata spending target of N5.77 at end of April,” the MTEF document stated.

According to the Minister, “The actual spending as of April 31st was N4.72 trillion. Of this amount, N1.94 trillion was for debt service, and N1.26 trillion was for personnel costs, including pensions.

“As of April, N773.63 billion had been spent on capital expenditure.

“As of April 2022, FGN’s retained revenue was only N1.63 trillion, 49 per cent of the prorata target of N3.32 trillion.”

According to the MTEF document, the Federal Government’s share of oil revenues was N285.38 billion (representing 39 per cent performance), while non-oil tax revenues totalled N632.56 billion — a performance of 84 per cent.

Giving an overview of the 2023-2025 Medium Term Revenue Framework (MTRF) on oil and gas revenues and Federally Funded Upstream for the period under review, Mrs Ahmed said two scenarios were open for consideration.

“The projected fiscal outcomes in the medium term are presented under two scenarios based on the underlying budget parameters/ assumptions, as follows: Scenario 1 – the Business-as-Usual scenario: This assumes that the subsidy on PMS, estimated at N6.72 trillion for full year 2023, will remain and be fully provided for.

“Scenario 2 – the Reform scenario: This assumes that petrol subsidy will remain up to mid-2023 based on the 18-month extension announced early 2021, in which case only N3.36 trillion will be provided for,” Mrs Ahmed stated.

Additionally, she said there would be tighter enforcement of the performance management framework for Government Owned Enterprises (GOEs) that would significantly increase operating surplus/dividend remittances in 2023.

However, the minister warned that both scenarios have implications for net accretion to the Federation Account and projected deficit levels.

Mrs Ahmed said, “the new arrangement has indicated that Nnpc will not be contributing monthly to the Federation as they used to in the past, but NNPC will be paying royalties, dividends and taxes. So while the revenue might not be monthly, we will work on an arrangement on how this will be paid. And it is possible to work out an arrangement where the payments could be either monthly or quarterly.

“So I was just saying that in a new arrangement regime, NNPC will not be contributing to FAAC on a monthly basis, but NNPC will still be paying taxes, royalties and dividends. We will be engaging the NNPC on how we expect this to come.

“We can negotiate how these remittances will be done on a quarterly basis for example. But let me also say that prior to the NNPC transiting, for about eight months we have not been receiving any revenues. Why are we not receiving any revenues from the Federation? Because the NNPC has been instructed to cover the cost of fuel subsidy on behalf of the federation.

“So NNPC is not paying the subsidy on its account and as I mean, they were not paying the subsidies that would have been remittances distribution and this is the area that we seek to continue in 2023.

“It will still be a federation expenditure that we are taking from the NNPC as a supplier of last resort. I see a situation where maybe we will soon have new refineries. Petroleum marketers can then fund their Premium Motor Spirit (PMS), invest and buy for themselves and sell to the Nigerians.

“And that’s why it’s important for us to consider this issue of removal of subsidies very seriously because no marketer is willing to buy PMS after sourcing foreign exchange and competing with subsidies.

“It can only be a government agency and in this case, we see the structure of the evaluation. NNPC has been paying for subsidy but they are doing it on behalf of the federation on the cost of the federation, even though they are the ones that have been paying. So when they generate revenue instead of remitting the revenue they are using part of the revenue or all of it to fund the subsidy. That has been the arrangement and that is what will continue to be in place until we exit the first scenario.

“In reality, we have to consider what makes sense for the majority of the people and it doesn’t lie on the shoulders of the Ministry of Finance but the answer lies with Nigerians”.

Mrs Ahmed explained the key assumptions and macroframework for 2023 – 2025 MTFF projections, noting that the medium-term projections deviate from the projections in the National Development Plan (NDP) 2021-2025 and that they have been updated based on a combination of current realities and a modified medium-term outlook.

In the MTEF, real GDP growth is projected at 3.75 per cent in 2023, from a revised projection of 3.55 per cent for 2022, while growth is expected to moderate to 3.30 per cent in 2024 before picking up to 3.46 per cent in 2025.

According to her, the inflation rate is projected to average 17.16 per cent in 2023, up from the revised average of 16.11 per cent for 2022 as upward pressure on prices is expected to be driven by the current and lag effect of the global price surge due to the Russian-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation, as well as other supply-side constraints.

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