The Nigerian economy is no doubt facing a tough time, and the prospect of the Federal Government funding its 2024 annual budget as projected is under discoloration. FESTUS OKOROMADU, in this report reviews the challenges and solutions proffered by experts.
The Minister of Finance and Coordinating Minister for the Economy, Wale Edun, on Thursday presented opposing views on the government raising more debt to be able to fund the proposed 2024 budget.
Out of the N26.01 trillion which the Federal Government has proposed to spend in 2024, N9.05 trillion is projected as deficit.
Though at 22%, the deficit is lower than the N11.60 trillion budgeted in 2023, it represents about 53% of the total Federal Government revenues and 3.83% of the estimated Gross Domestic Product.
At a meeting with the Finance Minister, the Joint Senate Committee on the 2024-2026 Medium Term Expenditure Framework and Fiscal Strategy Paper said that the government may need to borrow more to fund the 2024 budget, expressing concerns over the ability of revenue-generating Ministries, Departments and Agencies to meet their targets.
The Chairman of the committee, Sani Musa, said the responses received so far from the MDAs at their ongoing meetings on the MTEF indicate that they may not be able to meet their revenue targets.
“With the responses we are getting from MDAs, as finance committee, I am afraid if such targets will be met, if we will be able to fund the 2024 budget without going for more interventions, that is more loans”, Sani said during a meeting of the committee with Wale Edun; the Director General of the Debt Management Office and Chairman of the Federal Inland Revenue Service at the Senate.
Sani also raised fears that borrowing more loans will increase the deficit, and the burden of debt servicing will increase.
“Given the sluggish pace of economic development, attention remains focused on the oversized bureaucracies, composed of large ministries, agencies, and parastatals, which have acted as a hindrance to Nigeria’s progress”
The chairman further expressed concerns that there are a lot of leakages in the use of government resources, noting that a lot of money realized or collected as revenues from many agencies are not reported as, and when due.
“I cannot believe that an agency will receive revenue in 2022, and it is showing a receipt of collection in October 2023. So, I don’t know how these collections are made and how they (Accountant-General of the Federation) issue receipts.
Sani said the issuance of receipts has created room for misappropriation and mismanagement of funds and should be probed further.
The chairman further said the government revenue shortfalls have spiraled due to the issuance of waivers, but that there is no clarity on the agency issuing the waiver – whether the Federal Inland Revenue Service, Nigeria Investment Promotion Council or the Ministry of Finance.
Sani sought more clarity on the collection of revenue.
In response, Edun said Nigeria cannot afford to rely on loans at the moment and needs to ramp up revenue.
“In the environment that we have now, we are clearly in no position to rely on borrowing. We have an existing borrowing programme, our direction is to reduce reliance on borrowing, reduce the quantum and percentage of deficit financing in the 2024 budget.
“Internationally, there is focus among the rich countries on bringing down the inflation rate to stabilize their economies and give them an opportunity for investment and growth. But they are sacrificing that immediate growth for contracting economies or at least contracting money supplies and pushing up their interest rates. And of course, high interest rates and growth do not go together. What it means is that access to those funds is expensive, so it is the last thing we want to rely on.
“And as you know our debt servicing was taking 98 percent of revenue, so the last thing to think of is piling more debt,” he added.
He stressed that the solution remains revenue, and the government needs to not just maintain its activity, but also spend more.
“If you look at government spending, if you look at the budget as a percentage of GDP, it is one of the lowest, maybe around 10%, even Ghana is at 25 per cent. The most advanced countries in terms of social safety nets and social security systems are at 70% of GDP. So, we need to increase,” Edun said.
The Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, Mukhail Abiru, highlighted the need to screen the budget of all those revenue agencies, and find a way to optimize the opportunities sought.
“I believe we can help the revenue situation from those angles,” he said.
Speaking at another event same day, the 2023 annual directors conference of the Chartered Institute of Directors of Nigeria (CioD), in Abuja yesterday, Edun said, “The agenda of the Federal Government is to provide first and foremost a stable economy, growing more than population growth, with low inflation, stable foreign exchange to enable investments in productive activities.
“This is what the President is working on and we are a work in progress and we look forward to the task at hand.
“The big price is to make ourselves a formidable economy, our institutions a corporate governance place so that those interested in investing can have trust in their investment.”
Meanwhile, the aggregate amount available for capital expenditures in the 2024 budget is N6.87 trillion. This represents 26.41 percent of total estimated expenditure for the year and is about 5 percent less than the 2023 provision of N7.27 trillion.
Cost of governance
However, financial experts and others have charged the government to embrace cost saving measures as well as a lean governance structure.
The Director, Centre for Social Justice, Eze Onyekpere, noted that the cost of governance has been a decade-long standing concern in Nigeria, stressing that there is a need for the government to work towards reducing it as the country faces significant challenges related to the efficiency and effectiveness of government structures and the allocation of resources.
“Given the sluggish pace of economic development, attention remains focused on the oversized bureaucracies, composed of large ministries, agencies, and parastatals, which have acted as a hindrance to Nigeria’s progress,” he told The Point in an interview.
Similarly, an economic analyst at Financial Derivatives Limited, in a recent report stated that currently Nigeria runs a bloated government structure, resulting in a high cost of public sector spending and hurts the development process in a country.
This is evident as recurrent expenditure, which covers administrative and personnel expenses, continues to surpass capital expenditure, leading to negative effects on infrastructure, investments, employment, and economic growth.
Speaking to the implication of the bloated structure on the budget, the report stated that, “In the proposed 2024 budget, a mere 29 percent (N7.5 trillion) of the total expenditure was earmarked for essential capital projects. The non-debt recurrent expenditure (NDRE) stands at an alarming N10.26 trillion, constituting approximately 40 percent of the budget and representing a 23 percent increase from the approved 2023 budget of N8.33 trillion. Within this category, personnel costs alone amount to N7.78 trillion, constituting 75.83 percent of NDRE.
“Worse, the country grapples with substantial fiscal deficits, estimated at 4 percent of its GDP, above the 3 percent threshold established by the Fiscal Responsibility Act of 2007. This deficit has arisen due to exorbitant federal and state government expenditures, compounded by declining revenues from crude oil exports due to pipeline vandalism and theft.”
Another area of concern is the bureaucratic structure of government which is vast and often characterized by inefficiency and duplication of functions.
“The extensive network of government agencies, ministries, and parastatals places a considerable strain on public finances, limiting the country’s capacity to invest in economic diversification and job creation. In short, resources are diverted away from critical sectors such as healthcare, education, and infrastructure development,” the report stated.
Referencing the “Oronsaye Report”, the FDI analyst noted that the report submitted on April 16, 2012, highlighted intense competition among overlapping government agencies, causing friction and wasteful spending. Pointing out that the report suggested abolishing and merging 102 agencies, while some were to be self-sustaining. Unfortunately, these recommendations were largely ignored, and new agencies have since been introduced.
Danger of high cost of governance
Citing the ugly experience of Greece as it affects cost of governance, the FDI report said the consequences of Nigeria’s high cost of governance mirror the experiences of the Greek debt crisis, which was partly precipitated by its own cost of governance issues.
Emphasizing that in a scenario where an escalating proportion of government resources sustains the administrative structure, poverty becomes pervasive, and economic growth decelerates or stagnates.
Narrating the impact of a bloated government and increasing debt liability on Greece’s economy, the report said, “Greece’s debt crisis, which unfolded in 2009 and reverberated through the global economy, serves as a cautionary tale. While multifaceted, Greece’s debt crisis was escalated by the high cost of governance. Excessive government spending, including generous public salaries, pensions, and social welfare programs, consistently outpaced government revenues, leading to persistent budget deficits and a growing national debt. In 2009, Greece’s budget deficit exceeded 15 percent of its gross domestic product and the debt-GDP ratio stood at 100 percent.
“The Greek pension system, renowned for its generosity, allowed for early retirements and substantial pension benefits, straining public finances further. Bureaucratic inefficiency, marked by corruption and a lack of accountability within the public sector, also contributed to fiscal mismanagement.
“These high governance costs had severe consequences for Greece. The nation consistently faced budget deficits, resulting in its reliance on international loans from institutions like the EU and the IMF. The loans came with stringent austerity measures, leading to economic contraction, high unemployment, and social unrest. Greece’s economy shrank significantly (25 percent) in 2009 from the previous year.
“Although Greece has made progress in addressing some of these issues, the legacy of the crisis continues to shape the nation’s economic and political landscape, serving as a stark reminder of the importance of responsible governance and fiscal prudence.”
Case of lean government
In contrast to the Greece situation, the report tasks the Nigerian government to learn lessons from neighbouring African country, Rwanda.
“Rwanda serves as a worthy example for its efforts in achieving good and lean governance costs while maintaining effective administration, it stated. Adding that the government of Rwanda streamlined public administration, focused on reducing bureaucracy and improved efficiency.
“Also, public officials’ salaries and allowances are kept at reasonable levels. For instance, in 2018, under President Paul Kagame, the number of cabinet members was reduced to 26 from 31, to simplify the administrative structure and reduce the associated costs.
“In 2014, the country embarked on a “one-stop” e-government scheme designed to allow various departments to provide public services and information via a single point of access, i.e., a government portal. The project was established under the brand name “Irembo” (meaning “main entrance”). This helped to streamline government services and make them more accessible to citizens and businesses while also reducing bureaucracy and the time it takes to access government services. The Rwandan government has further increased its efforts by launching an expanded “One Stop Center” in March 2023 to improve service delivery for investors seeking to do business in the country. The goal is to improve the ease of doing business in the country, while also improving transparency in the system.
“Worse, the country grapples with substantial fiscal deficits, estimated at 4 percent of its GDP, above the 3 percent threshold established by the Fiscal Responsibility Act of 2007. This deficit has arisen due to exorbitant federal and state government expenditures, compounded by declining revenues from crude oil exports due to pipeline vandalism and theft”
“More so, Rwanda’s embrace of digital governance through the Electronic Content Management (ECM) initiative has increased efficiency and reduced service delivery costs. The initiative involves digitizing and centralizing government documents and records, making them easily accessible to authorized personnel while ensuring data security and integrity. The implementation of ECM systems improved the management of government documents, ensuring data security, ease of retrieval, and efficient sharing among relevant government agencies.
“Rwanda’s commitment to combating corruption and promoting transparency is a key factor in its efficient governance, a lesson Nigeria can implement through strengthening anti-corruption institutions and enforcement mechanisms.”
Comparing the corruption rankings and ease of doing business between Rwanda and Nigeria underscores the importance of efficient governance.
Nigeria could invest in digital infrastructure and e-governance to achieve similar benefits. Efficient governance will enhance the ease of doing business by simplifying administrative processes, creating clear regulations, and improving public services, ultimately reducing bureaucratic hurdles for businesses.
Moreover, a low cost of governance can attract more domestic and foreign investment, as it frees up resources for critical infrastructure and public services that benefit businesses and investors.
Summarily, the FDI report suggested that the Federal government should embrace a lean government as one of the ways of overcoming the challenges of funding.
The report also listed steps that can be taken to address the issue of high governance expenses in the country to include merging similar government agencies, making political positions less alluring, and conducting thorough personnel audits, which would eliminate ghost workers and reduce redundant staff across all levels of government.
“It is imperative for the branches of government to actively commit to and put into action policies aimed at reducing costs and boosting economic growth. If these actions are undertaken, Nigeria has the potential to achieve efficiency similar to that seen in Rwanda. Otherwise, there is a risk of facing financial challenges akin to those experienced by Greece,” the report warned.
