On 7 October, President Muhammadu Buhari presented the 2022 appropriation bill to both houses of the national assembly. In some respects, the draft budget builds on last year's tendency of putting forward sensible assumptions on some accounts, while others remain as illusory as ever. Meanwhile, Buhari will leave his successor a record pile of debt that will have more than doubled during his eight-year tenure.
The already amended budget plan envisages spending of NGN 16.45tn (USD 40bn), including NGN 2.47tn (USD 6bn) additional expenditure for preparation of the February 2023 general elections, among other things. Projected revenue of NGN 3.16tn (USD 7.7bn) of oil and gas proceeds is underpinned by conservative estimates in terms of average oil production (1.88mn barrel/day) and price (USD 57 per barrel) in 2022. Less plausible is the assumption of a stable exchange rate at the current NGN 410 per USD, which, unsurprisingly, indicates that the administration is bound on sticking to its policy of defending the naira at all costs, with the current liquidity crunch likely to continue.
Even more problematic is the estimated non-oil revenue figure of NGN 2.13tn (USD 5.2bn) that will hinge on the administration's rather upbeat economic growth forecast of 4.2% for next year, which is almost twice what the IMF has currently penciled in (2.3%). Furthermore, the medium-term target to grow tax receipts in terms of a revenue-to-GDP ratio from 6.3% in 2018 to 15% by 2025 contrasts with the Buhari administration's persistent failure to lift this ratio by a single percentage point. Besides, the administration has a habit of grossly undershooting its own annual revenue targets, even pre-Covid-19. In fact, the 34% shortfall accrued in H1-2021 is similar to those registered in 2016 or 2017.
Accordingly, the actual budget deficit will most likely come in higher than the currently anticipated NGN 6.26tn (USD 15.3bn), representing 3.4% of estimated GDP and thus in breach of the 3% threshold set by the 2007 Fiscal Responsibility Act. Unlike in previous years, cutting back on capital expenditure in the second half of the year is hardly an option for the ruling All Progressives Congress (APC), with two important state elections due in H2 2022 and the February 2023 general election just around the corner. Accordingly, Buhari may come back with a supplementary borrowing request next year, in addition to the NGN 5.01tn (USD 12.2 bn) already baked into the present appropriation bill. As domestic debt will have more than doubled and external debt almost quadrupled during Buhari's eight-year tenure (see chart), his successors will have to work out how to ensure that what Buhari today termed a “revenue challenge” does not become a solvency issue after all.