As the negative implication of petroleum products importation bites harder, the federal government of Nigeria is once again seeking to upset the resulting budget deficit through loans.
On Thursday, the Speaker of the House of Representatives Femi Gbajabiamila, read a letter sent by President Muhammadu Buhari, requesting approval for a fresh loan and a review of the 2022 Appropriation Act.
The president said the total budget deficit is expected to increase by N965.42 billion to N7.35 trillion, representing 3.99% of GDP. This is mainly due to the surge in oil price that has significantly shot above Nigeria’s $62/barrel 2022 budget oil benchmark.
Buhari said the incremental deficit will be financed by new borrowings from the domestic market. He also requested the review of the 2022 Medium-Term Expenditure Framework (MTEF), upon which the budget was hinged.
“As you are aware, Mr. Speaker, the new development both in the global economy as well as the domestic economy has necessitated the revision of the 2022 fiscal framework on which the 2022 budget was based.
“The total budget deficit is projected to increase from N965.42 billion to N7.35 trillion, representing 3.99 percent of the GDP.
“The increment of the deficit will be financed by new borrowings from the domestic market.
“Given the urgency of the request for revision of the 2022 fiscal framework and 2022 budget amendment, I seek the corporation of the National Assembly for expeditious action on this request,” he said.
The speaker referred the letter to the house committee on finance for further legislative action.
Last month, Nigeria’s public debt profile hit a new height of N41 trillion, according to data from the Debt Management Office. The federal government’s borrowing was recently accelerated by the need to fill the budget deficit buoyed by fuel subsidy payments.
Exacerbated by the outbreak of Russia-Ukraine conflict, Nigeria’s government is grappling with the economic headwinds emanating from the rise in crude oil price. Though an oil-based economy, Nigeria has no functioning refineries, a situation that has made it dependent on importation of petroleum products refined outside its shores. This means, like in non-oil producing countries, pump prices in Nigeria will be determined by the activities in the international market.
The situation is further compounded by the West African country’s lack of capacity to increase its oil output amid the burgeoning global demand. Nigeria is Africa’s largest producer of oil and sixth largest exporter in the world, with a maximum crude oil production capacity of 2.5 million barrels per day. But as of February, the Africa’s largest economy could only put out an average of 1.417 million barrels per day, a decline of 10,000 barrels per day when compared to the 1.427mb/d produced averagely in the month of January 2021, according to data published by Organization of the Petroleum Exporting Countries (OPEC).
The only time Nigeria had come close to its maximum production capacity was in November, 2005, when it recorded an all time high production output of 2475 mb/d.
The Nigerian National Petroleum Corporation Limited (NNPC), has attributed the poor output to vandalism of oil pipelines and other installations. The Minister of State for Petroleum Resources, Chief Timipre Sylva, said it’s due to the withdrawal of operation by multinational oil companies and investors from Nigeria.
“The rate at which investments were taken away was too fast. Lack of investment in the oil and gas sector contributed to Nigeria’s inability to meet OPEC quota. We are not able to get the needed investments to develop the sector and that affected us,” Sylva said in a statement by his media aide, Horatius Egua, in March.
Nigeria’s production output has stagnated around 1.4mb/d for 11 years now, which greatly falls short of the 1.8mb/d quota set by OPEC.
These backdrops have set Nigeria up to the self-sabotaging economic choice of borrowing to fund its fuel subsidy, as the timeline of total removal of the subsidy has repeatedly been adjusted forward due to unforeseen changes in the oil market.
This is not the first time in the year the federal government is making a request for the review of the 2022 Appropriation Act. In January, the Minister of Finance, Zainab Ahmed asked for the amendment of the budget to accommodate the increase in oil price.
With the global oil price still on the rise, experts believe that more borrowings and further amendments of the 2022 Appropriation Act are inevitable.