Shouldn’t FG borrow less with increased revenue?

On Monday, January 13, 2020, the President, Major General Muhammadu Buhari (retd.) signed the 2020 Finance Bill into law. The Special Adviser to the President on Media and Publicity, Femi Adesina, confirmed this development in a statement in Abuja. According to the presidential aide, this is sequel to its passage by the National Assembly and subsequent forwarding by the legislature to the President for assent. Recall that Buhari, while presenting the 2020 Appropriation Bill to the National Assembly, had also presented the Finance Bill.

Adesina in his press statement was quoted as saying, “This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws. These objectives are; promoting fiscal equity by mitigating instances of regressive taxation; Reforming domestic tax laws to align with global best practice; Introducing tax incentives for investments in infrastructure and capital markets; Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and Raising Revenues for Government”. With the signing of this Finance Bill, the proposed increase of the VAT rate from five per cent to 7.5 per cent takes effect from February 1, according to the Minister of Finance, Budget and National Planning, Zainab Ahmed. Invariably, with the assent, there would be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure.

Incidentally, on Monday, November 4, 2019, the President signed the Deep Offshore and Inland Basin Production Sharing Contract Amendment Bill into law. The law is expected to significantly increase Nigeria’s share of earnings earned from oil wells offshore the country. Reports have it that the Act was enacted on March 23, 1999, with its commencement backdated to January 1, 1993. However, for some time, there has been serious disagreement between the government and the international oil companies on the need to review the law to reflect current realities. The essence of the adjustment of the sharing formula was to ensure that the Production Sharing Contracts shall be economically beneficial to the government of the federation.

According to media reports, of late, the Federal Government through the Office of the Attorney General of the Federation and Minister of Justice, Abubakar Malami, has been making a case for the recovery of over $62bn from the international oil companies as arrears of revenues that should have accrued to Nigeria over the years that oil sold above $20 a barrel. Malami reportedly accused the IOCs of frustrating efforts in the past for the government to negotiate the review of the PSC.

In shedding more light on the implication of this amended law, Buhari said: “Today, I signed into law the amended Deep Offshore Act. Nigeria will now receive its fair, rightful and equitable share of income from our own natural resources for the first time since 2003. In that year, oil prices began a steep increase to double – and at times – triple over the following decade. All this time, Nigeria has failed to secure its equitable share of the proceeds of oil production, for all attempts to amend the law on the distribution of income have failed. That is, until today. Rapid reductions in the cost of exploration, extraction and maintenance of oil fields had occurred over these 25 years, at the same time as sales prices have risen”.

The President went further: “A combination of complicity by Nigerian politicians and feet-dragging by oil companies has, for more than a quarter-century, conspired to keep taxes to the barest minimum above $20 per barrel – even as now the price is some three times the value. Today, this changes. For the first time under our amended law, 200 million Nigerians will start to receive a fair return on the surfeit of resources of our lands. Increased income will allow for new hospitals, schools, infrastructure and jobs. Today marks a new and beneficial relationship with our oil company partners: one that benefits all – starting with the Nigerian people.”

Nigeria’s 2020 oil price benchmark is $57 per barrel. But as of the time of writing this, crude oil price in international market hovers between $64 and $70, which means there is also increased revenue for the Federal Government to save and to share.

Unknown to many Nigerians, electricity tariff is being subsidised by the Federal Government. According to the Minister of Power, Sale Mamman, the Distribution Companies had not been distributing all the power wheeled to them on the pretext that the consumers were unable to pay for the power. This, he said, necessitated the huge government subsidy intervention in the power sector, by paying the generation companies for undistributed power.

Mamman lamented that the Federal Government had approved intervention to the tune of N1.3tn to the GenCos. He explained that the huge subsidy being paid was weighing on government spending, adding that over 2,000MW of electricity was not being distributed due to the failure of the distribution chain”. As announced on January 4, 2020, there is now an official hike in the electricity tariff to the tune of 78 per cent with effect from April 1, 2020.

This means government is reducing its subsidy in the electricity sector which invariably means more money should be available to the Federal Government to fix infrastructure.

In the light of payment of N50 Stamp Duty, increased revenue as a result of partial closure of the country’s international borders, higher revenue from increase in Value Added Tax and outstanding $62bn arrears from International Oil Companies operating in Nigeria, should the Buhari regime still be borrowing to finance its budget?

On Friday, January 17, 2020, the Debt Management Office said the total public debt as of September 2019 stood at N26.215tn. The Director-General of DMO, Ms. Patience Oniha, made this known during a presentation of the country’s public debt data as of September 30, 2019, in Abuja. Oniha explained that the debt comprised the Federal Government and 36 states and the Federal Capital Territory’s debts within the period. She said the comparative figure for June 2019 was N25.701tn which implied that in the quarter, July to September 2019, the total public debt grew by 2.0 per cent. Despite this huge debt portfolio, there is still the $29.69bn 2016 – 2018 external borrowing plan of the Federal Government being considered by the Senate. Many economists and analysts have expressed worry that Nigeria is gradually slipping into a debt trap given the fact that N2.45tn which is about a quarter of the country’s N10.59tn budget is being used for debt servicing in 2020.

I am worried about this increased indebtedness. Not only that, I also want better accountability for the increased revenue from all the highlighted revenue sources. Thirdly, we can actually borrow less by reducing substantially the cost of governance. Government can cut down considerably from the running cost.

Money voted for entertainment and welfare; the N8.5bn earmarked for maintenance of presidential fleet, N37bn for the renovation of the National Assembly, and funds voted for sponsorship of Nigerians on pilgrimages and attendance of international conferences of professional associations can be considerably cut down if not totally removed to mobilise resources for critical infrastructure.

Lastly, plugging all revenue loopholes and doubling down on the fight against corruption will help us improve the living standard of many more Nigerians.

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