Buhari puts off the big calls in Nigeria's 2022 budget

President Muhammadu Buhari announced no major tax measures or spending cuts when he put forward Nigeria’s 2022 budget in parliament last week (7 October) as the country prepares for a critical election campaign season. In fact, the budget of NGN16 trillion (USD40 billion) will be 25% larger than this year’s budget and nearly three times the size of Buhari’s first[1] budget in 2016. However, government revenue has barely increased in the last five years. Political unrest has interrupted fiscal reforms, and now the Buhari administration’s focus has shifted to defusing tensions before 2023 elections and deciding who controls the next administration.

Significance – Balancing the oil barrels

Nigerian oil production remains lower than pre-2015 levels. The country did not fully recover from a wave of militant attacks that slashed the country’s output between 2015 and 2018, and key facilities targeted by militants continued to deteriorate as firms withheld investment and a petroleum industry bill hung in the balance. This year alone, Shell has declared a force majeure twice because the Trans Forcados pipeline was shut for repairs. That cut exports by more than 240,000 barrels per day. As a result, government has raised only 56% of its oil revenue target this year and net revenue has also been lower than forecast by a quarter. This is despite a boost in non-oil receipts due to a 50% hike in Value Added Tax (VAT) that took effect last year. Meanwhile, the government continues to forgo an increasing portion of oil revenue to the Nigerian National Petroleum Corporation (NNPC).

Average annual production vs 2021 target (mbpd)

Government revenues (NGN Trillions)

The state oil firm has been unilaterally importing almost all of the country’s petrol at a loss since Buhari took charge in 2015 – effectively subsidising the product for the government.[2] These subsidies are deducted from NNPC’s monthly remittances to the government and cost more than USD3 billion a year (equivalent to approximately 10% of the national budget).[3] The scale of this revenue loss drew attention in April when NNPC notified the government that it would make zero remittances in the following month because it would deduct the money for petrol subsidies.

Last week, Finance Minister Zainab Ahmed listed the ‘elimination of regressive subsidies on petrol price and electricity tariffs’ among proposals to shore up government revenue in the coming year. However, she and the president gave no further clarity. This is despite the enactment of a Petroleum Industry Act in August this year that stipulates the restructuring of NNPC but ultimately leaves it under similar discretionary state control (See: What’s the outlook for Nigeria with newly enacted petroleum law?).

Political will is limited. The government has been reluctant to cut subsidies and apply similar fiscal reforms that may trigger a backlash. This is not only because there is high inflation and labour unions oppose the changes, but it is also because the country has been experiencing significant political unrest. For example, the army was called to put down an #EndSARS uprising about police reform in October last year and the waning legitimacy of the democratic system is currently stoking a violent separatist movement in the southeast (See: Southeastern Nigeria gubernatorial election at risk). Therefore, the government has chosen to cover revenue gaps with more borrowing while putting fiscal reforms on hold. Debt servicing has been 74% of revenue so far this year,[4] and next year the government plans to borrow NGN5 trillion – more than the entire 2015 budget.

Outlook – Politicking

The political calendar militates against significant rationalisation of expenditure over the next 18 months. Buhari (from northern Katsina) is ineligible to run again in 2023 when he will have been president for eight years. However, there is uncertainty over the country’s unwritten political rule that power oscillates between the north and south every eight years. The tussle over which region will produce the next president and control the next administration will overshadow fiscal policymaking.

Meanwhile, the new Petroleum Industry Act is unlikely to change the described dynamic between the government and NNPC in practice because NNPC effectively remains a parastatal. The amount of petrodollars available to fund budgets may also be limited by the law. The Nigerian Upstream Regulatory Commission is empowered to withhold 30% of NNPC profits, to be spent by this new regulator on exploration in ‘frontier basins’.  

[1] As a civilian head of state.

[2] Under previous administrations, the subsidies were paid to private importers instead.

[3] Nigeria fuel subsidies near $300 million a month, NNPC says (March 2021). Bloomberg.

[4] FG spends 74% of revenue on debt service in first 8 months of 2021 (October 2021). Business Day.

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Nana Ampofo