Ahead of the 2023 budget presentation, the Federal Government, yesterday, insisted that petroleum subsidy would remain in place until mid-2023. In addition, the government will borrow over N11 trillion and sell national assets to finance budget deficit next year.
The Minister added that the Federal Government is proposing an aggregate expenditure of N19.76 trillion for the 2023 financial year, a 15.37 per cent increase from the amount earmarked in the 2022 budget, with a projected deficit of N11.30 trillion, 54 per cent higher than the previous budget’s estimated deficit.
This was disclosed by the Minister of Finance and National Planning, Zainab Ahmed, while appearing before the House of Representatives Committee on Finance in Abuja, to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
She also said the government’s budget deficit is expected to exceed N12.42 trillion if it should keep petroleum subsidy for the entire 2023 fiscal cycle. According to the Minister, the government is proposing to spend only N3.36 trillion for petrol subsidy in 2023 based on the 18-month extension announced early 2022.
Recall that last week, the Minister had disclosed that government was spending N18.39 billion daily on PMS.
Zainab said the Federal Government was projecting the total revenue of N8.46 trillion, out of which N1.9 trillion is expected to come from oil-related sources while the remaining is to come from non-oil sources. Meanwhile, the Federal Government is expected to peg crude oil price at $70 per barrel with projected daily oil production fixed at 1.69 million barrels per day at an exchange rate of N435.57 per dollar, while real Gross Domestic Product (GDP) is projected at 3.7 per cent and inflation at 17.16 per cent.
Explaining two scenarios of the budget deficit to the committee, the Minister said the first option involves retaining the petrol subsidy for the entire 2023 fiscal year.
According to her, in the first scenario, the deficit is projected to be N12.41 trillion in 2023, up from N7.35 trillion budgeted in 2022, representing 196 per cent of total revenue or 5.50 per cent of the estimated GDP. In this option, she said government would spend N6.72 trillion on subsidy.
Ahmed said the second option involves keeping subsidy till June 2023 and that this scenario will take the deficit to N11.30 trillion, which is N5.01 trillion of the estimated GDP. In this option, PMS subsidy is projected to gulp N3.3 trillion. She noted that the first option is not likely to be achievable based on the current trend, while the second option would require tighter enforcement of the performance management framework for government-owned enterprises (GOEs) that would significantly increase operating surplus in 2023.
The projected deficit under the second option, the Minister said, is expected to be financed through new borrowings from local and international sources. This will include a total of N9.32 trillion in new borrowings, comprising N7.4 trillion from domestic sources and N1.8 trillion from foreign sources. The government is expected to generate N206.1 billion from privatisation proceeds and N1.7 trillion in multilateral project-tied loans.
The two proposals have budget deficits far above the stipulated threshold in the Fiscal Responsibility Act. According to the existing Act, the deficit must not exceed three per cent of the GDP. The deficit could jump higher if the petrol subsidy is not terminated by June 2023 as President Muhammadu Buhari earlier said.