Plans are underway by the Federal Government to remove subsidies on petrol and electricity in 2022, the Minister of Finance, Budget and National Planning, Dr. Zainab Ahmed, has said.
Ahmed, who disclosed this in Abuja, yesterday, while giving a full breakdown of the 2022 budget, explained that the removal of subsidies was part of the overall step at addressing revenue leakages.
She said: “Efforts at addressing revenue leakages include concluding the service-wide implementation of IPPIS; dimensioning cost of tax waivers and promoting policy dialogue and transparency around tax waiver regimes; elimination of regressive subsidies on petrol price and electricity tariffs; a cost-to-income-ratio cap for Government Owned Enterprises (GOEs) with a view to improving remittances to the Federal Government’s coffers.”
The Minister insisted that achieving budget objectives requires bold, decisive and urgent actions, saying the government was determined to act as may be required.
She, however, stated that government remains mindful of the need to provide safety nets to cushion the impacts of reform measures on the vulnerable segment of the population.
The defence and security sector got the lion share of the budget with15 per cent or N2.41 trillion while education came second with 7.9 per cent or N1,290.03 billion and the health sector was allocated five per cent which translated to N820.2 billion.
Overall, budget deficit is N6.26 trillion for 2022. This represents 3.3 per cent of Gross Domestic Product (GDP).
The Minister hinted that the budget deficit would be financed mainly by borrowings, adding that the sum of N2.51 trillion would be sourced domestically while foreign sources would be N2.51 trillion.
She said that multi-lateral/bilateral loan drawdowns stand at N1.16 trillion, while privatisation exercise was expected to yield N907.7 billion.
The Minister hinted that the government has had to resort to borrowing to finance the fiscal gaps, but was quick to add that the Federal Government believes that its debt level is still within sustainable limits.
“Borrowings are essentially for capital expenditure and human development as specified in Section 41(1) a of the Fiscal Responsibility Act 2007. Having witnessed two economic recessions, we have had to spend our way out of recession, which contributed significantly to the growth in the public debt. It is unlikely that our recovery from each of the two recessions would have been as fast without the sustained government expenditure funded partly by debt,” she said.
While arguing that the challenge confronting Nigeria currently was not wholly a debt issue, she noted that the inability of the country to generate enough revenue to fund its development activities such as building infrastructure and funding social sectors was the real challenge.
The minister stressed that Nigeria must fix its revenue challenge, adding that cutting expenditure was not a viable option currently.
“Our Public Expenditure/GDP ratio is the lowest amongst same Africa leading economies. We must however continue to rationalise our expenditures, as we cannot afford waste. In reality, our largest expenditure items are currently personnel cost, debt service and capital expenditure, which account for 85 per cent of the 2022 budget. There is very little scope for a cut in any of these over the medium terms. The most viable solution to our fiscal challenge, therefore, remains to grow our revenues and plug all leakages,” the minister added.
Ahmed hinted that the government’s target over the medium term was to grow Nigeria’s revenue-to-GDP ratio from about eight to nine per cent currently to 15 per cent by 2025, saying at that level of revenue, the debt-service-to-revenue ration would cease to be a critical concern.
She said the rising debt profile was accelerated by economic recession and the advent of the COVID-19 pandemic.
According to her, the government planned to address the challenge through the administration’s Strategic Revenue Growth Initiatives, which is aimed at improving government revenue and entrenching fiscal prudence with emphasis on achieving value for money.
She listed the measures to include improving tax administration framework involving payment compliance improvements; evaluation of the process and policy effectiveness of fiscal incentives regarding review of sectors eligible for Pioneer Tax Holiday incentives under the Industrial Development Income Tax Relief Act (IDITRA); dimensioning the cost of tax waivers/concessions, and evaluating their policy effectiveness; setting annual ceilings on Tax Expenditures to better manage their impacts on already constrained government revenues; ensuring that MDAs appropriately account for and remit their internally-generated revenue; leveraging technology and automation and plugging fiscal drainers like subsidies.