2022 Budget Performance: BudgIT Expresses Concerns Over Implications Of Fuel Subsidy, Debt Servicing

*As FG raises N1.84trn in bond market

BudgIT, a foremost civic-tech organisation leading advocacy for transparency and accountability in Nigeria’s public financial management, has expressed concerns over the poor fiscal performance of the federal government’s 2022 budget and the growing subsidy payments.

This is even as the federal government in First Half (H1) of 2022 has raised a total of N1.84trillion through the FGN bond market to finance the N6.26trillion 2022 budget deficit, as disclosed by the Debt Management Office (DMO) in its FGN Bond auction results.

According to BudgIT, the most pressing concern is the debt service-to-revenue ratio, which has reached alarming levels within the first 4 months of 2022. The country’s current debt service, which stood at N1.94 trillion from January – April 2022, is over 100 per cent of the nation’s revenue which was N1.64 trillion, within the same period.

“This is in spite of warnings given by the International Monetary Fund (IMF) that Nigeria would be spending over 100 per cent of its revenue on debt service in 2026. Unfortunately, those predictions are Nigeria’s current realities.”

It would be recalled that BudgIT, in a Consultation Memo released in February 2022 titled: “Leveraging Budget Reforms for Economic Development”, had articulated several reform issues bordering on Nigeria’s public financial management regime that affect the very core of governance, separation of powers, expenditure efficiency, and the livelihoods of millions of Nigerians; 83 million of whom live in extreme poverty. 4 months later, some of those same challenges exist, with additional ones that-if not properly managed, spell fiscal crisis for an already impoverished nation. In particular, the debt service spending is only N93.6 billion

To this end, there is no gainsaying that the fortunes of the most populous black nation on earth, Nigeria, have worsened in the last 8 months after the 2022 budget was passed.

According to BudgIT’s Country Director, Gabriel Okeowo, “Despite being confronted with a myriad of challenges ranging from the five-months and counting ASUU strike which has crippled Nigeria’s tertiary education; to 13-month high inflation of 17.7 per cent which has pushed millions of more Nigerians into poverty; a drastic decline in Nigeria’s oil production which has displaced Nigeria as Africa’s biggest crude oil producer; a massive increase in the country’s petroleum subsidy liabilities (which has crowded out investment in critical areas of the economy, obliterated federal transfers to subnational units, and skyrocketed the country’s debt to over N41.6 trillion).

“ A complete breakdown of law and order in several cities across the federation, which has encumbered the inflow of foreign direct investments and increased the cost of doing business; Nigerians are waiting with bated breath for the national budget to begin to bring about the relief and positive change it was claimed to have harboured.”

BudgIT posits that, with 2022 being a pre-election year, alongside the growing fiscal threat posed by subsidy payments and the debt service-to-revenue ratio; all the latter will negatively impact Nigeria’s budget credibility, cripple service delivery in critical social sectors of the economy and impede needed investments in productive sectors, thereby stunting economic growth.

Meanwhile, the raised N1.84 trillion by DMO from local investors represents an increase of 29.8per cent compared to N1.42trillion FGN bond raised in H1 2021.

The February auction result for the 12.50 per cent FGN JAN 2026 (Re-opening, 10-Year Bond) & 13.00 per cent FGN JAN 2042 (Re-opening, 20-Year Bond) recorded allotted amount worth N415.42billion (inclusive Non-Competitive Allotment), while auction result for January’s 12.50 per cent FGN JAN 2026 (Re-opening 10-Year Bond) & 13.00 per cent FGN JAN 2042 (New Issue 20-Year Bond) recorded N170.64billion allotted amount by the debt management office.

However, the FGN Bond auction result issued by DMO revealed that the total amount offered between January and June 2022 increased to N1.2 trillion as against N900 billion offered between January and June 2021.

The FGN bonds issued by DMO in the first H1 2022 have recorded oversubscription despite mixed interest rates.

The DMO in H1 2022 offered N1.2trillion FGN for subscription and it was oversubscribe by N3.02 trillion, which is 39.8per cent or N1.82trillion oversubscription rate.

The monthly breakdown of FGN Bond revealed that DMO on behalf of the Federal government offered for subscription N225 billion worth of FGN bonds by auction in June 2022.

The bonds were listed in three tranches: N75 billion – 13.53% FGN Mar 2025 (10-yr Re-opening); N75 billion – 12.50 per cent FGN Apr 2032 (10-yr Re-opening) and N75 billion – 13.00% FGN Jan 2042 (20-yr Re-opening).

For May, the debt office had issued a similar bond worth N225b