The Federal Government is sinking deeper into a fiscal deficit that is already towering to N14 trillion as President Bola Tinubu kicked off the process of widening the gap with N6.2 trillion through a supplementary budget yesterday. ..Read Full Article
The government said it would tap into about N2.6 trillion commercial banks have made from foreign exchange gains between the last quarter of 2023 and 2024. Though the actual money made by all the banks is sketchy, the total figure is estimated at N2.6 trillion, with the government eyeing 50 per cent from the windfall.
The estimated revenue expected from the FX gain is around N1.3 trillion, which leaves N4.9 trillion as a deficit. Already, the government has N8.7 trillion deficit overhang from the original 2024 budget. With the hole created by the fresh proposal, the deficit could hit N13.6 trillion in total.
But the quick-fix route may not be effective as Nigeria continues to dig itself deeper into the budget deficit amid a rising unfunded deficit, which rose to almost N1 trillion for the first three quarters of last year.
Indeed, The Guardian reported last week that reluctant foreign creditors have created a hole in Nigeria’s income in the form of an unfunded deficit that the Budget Office puts at N979 billion.
The government had always found its way of nudging out unfunded deficits from its book. But last year (2023), it could only borrow N4.4 trillion or 50.6 per cent of the N8.7 trillion it intended to borrow to augment its depleting self-funding sources between January and September.
This comes as the President is expected to resume consultationwith organised labour over a new national minimum wage. The supplementary budget may have sent cheering news to the restive labour leaders as money the prospect of funding the add-on is underway. Tinubu asked the National Assembly to jerk up the 2024 budget by an additional N6.2 trillion yesterday in a proposal that is already being deliberated.
The 2024 appropriation act was pegged at N28.7 trillion, and has now been moved to N34.9 trillion, following N6.2 trillion top-up. According to the letter of the President addressed to the Senate President, Godswill Akpabio, Tinubu said N3.2 trillion is meant for infrastructure projects while the remaining N3 trillion is earmarked for recurrent expenditure.
He stated: “Under section 58 (2) of the constitution of the Federal Republic of Nigeria as amended, I forward herewith the above-named bills for consideration and passage by the senate. The appropriation act amendment bill seeks to amend the principal act to provide the sum of N3.2 trillion for Renewed Hope Infrastructure Projects and other critical infrastructure projects to be undertaken across the country and the sum of N3 trillion to meet further recurrent expenditure requirements necessary for the proper operation of the federal government. They shall be funded by accruing to the federal government of Nigeria.”
The President, in a bill for an Act to amend the Finance Act, 2023 to impose and charge windfall tax on banks and to provide for the administration of the tax and matters related thereto.
Section 30 of the Bill reads: “There shall be levied and paid to the benefit of the Federal Government of Nigeria a tax of 50 per cent on the realised profits from all foreign exchange transactions of banks within the 2023 financial year.”
The bill empowers the Federal Inland Revenue Service to assess and collect the tax. “The Federal Inland Revenue Service shall assess the realised profits, collect, account and enforce payment of tax payable under section 30 by the powers of the Service” It stated.
However, the bill permitted the FIRS to enter into agreements with banks for deferred payment. On the sanction to be imposed on defaulting banks, the proposed amendment to the Finance Act stipulates that: “Any bank that fails to pay the windfall tax to the Service and has not executed a deferred payment agreement before 31st December 2024, commits an offence and shall upon conviction be liable to pay the tax withheld or not remitted in addition to a penalty of 10 per cent of the tax withheld or not remitted per annum an interest at the prevailing Central Bank of Nigeria (CBN) minimum re-discount rate and imprisonment of its principal officers for not more than three years.”
In the same vein, President Tinubu requested for amendment of the Finance Act, 2023, to impose and charge windfall tax on banks and to provide for the administration of the tax and matters related thereto.
The supplementary budget may also seek to inculcate the envisaged increment in the minimum wage as the processes of getting a new national wage floor edged closer. Also, infrastructural development, education, healthcare access and public welfare initiatives are slated to be part of the fund.
The President added: “Furthermore, the proposed amendments to the Finance Acts 2023 are required to a one-time windfall tax on the foreign exchange gains realised by banks in their 2023 financial statements to fund capital infrastructure development, education, and healthcare as well as welfare initiatives all which are components of the Renewed Hope Agenda.”
After hearing the content of the President’s letter, the Senate immediately went into action and subjected the requests to debate, an exercise that culminated in the second reading passage of the amendments bill. Most senators agreed that the passage of the amendment bill has become imperative for the new minimum wage being planned by the Federal Government.
The 2024 budget amendment bill was presented to the Senate by the Senate leader, Michael Bamidele Opeyemi, who stressed that N3.2 trillion is for capital expenditure, while N3 trillion goes for recurrent expenditure, to be spent before the end of 2024.
The borrowing spree and other red indicators may be hurting the economic growth projection of the country with the International Monetary Fund (IMF) downgrading the growth prospect to 3.1 per cent.
The Bretton Woods institution cuts Nigeria’s economic growth in 2024 to 3.1 per cent from its earlier forecast of 3.3 per cent. The downgrade is contained in IMF’s July 2024 World Economic Outlook. The IMF cited weaker growth recorded in the first quarter of the year as the reason for the new forecast. Nigeria is embarking on some monetary reforms with the central bank clearing the foreign exchange backlog and the federal government removing petrol subsidies.
Data from the National Bureau of Statistics (NBS) showed that Nigeria’s Gross Domestic Product (GDP) growth dropped, quarter-on-quarter, to 2.98 per cent in Q1’24 from 3.46 per cent in the fourth quarter of 2023.
The country is currently facing galloping inflation which hit an all-time high of 34.19 per cent in June according to the NBS in its recent Consumer Price Index (CPI) report.
Food prices have skyrocketed as food inflation also jumped to 40.87 per cent in June 2024, thus worsening the living conditions of the citizens. The IMF however retained its three per cent forecast for Nigeria’s economic growth in 2025 which is adjudged to be higher than growth estimates of most emerging markets.
As a result of the lower forecast for Nigeria’s economic growth, the IMF also downgraded its forecast for Sub-Saharan economic growth in 2024 to 3.7 per cent from the April WEO forecast of 3.8 per cent. It however raised its economic growth forecast for the region in 2025 to 4.1 per cent from 4.0.
“The forecast for growth in sub-Saharan Africa is revised downward, mainly as a result of a 0.2 percentage point downward revision to the growth outlook in Nigeria amid weaker than expected activity in the first quarter of this year,” the IMF said.
While South Africa’s growth in 2025 is projected at 1.2 per cent from 0.9 per cent this year, Brazil’s growth stands at 2.4 per cent growth from 2.1 per cent in 2024.
The IMF also said Mexico will grow by 1.6 per cent in 2025 as against 2.2 per cent in 2024. For the global economy, the IMF retained its growth forecasts of 3.2 per cent in 2024 and 3.3 per cent in 2025.
Speaking about the supplementary budget, Prof. Godwin Oyedokun of Lead City University, said that it reflects a balanced approach to addressing critical infrastructure needs and supporting the workforce while also seeking innovative ways to enhance government revenue.
He, however, observed that it would be crucial for the National Assembly to thoroughly scrutinize the proposals to ensure that they are realistic, effectively targeted, and implemented in a manner that maximizes their intended benefits.
On his part, Eze Onyekpere, a fiscal governance expert, said there is no evidence of the proper implementation of the capital component of the 2024 Appropriation Act due to a lack of funds.
His words: “I understand the 2023 Appropriation Act and the Supplementary Budget have not been fully implemented due to paucity of funds,” Onyekpere said, and asked “From which source would the government raise N6.2 trillion to fund this supplement?
“Amending the Finance Act to tax foreign exchange gain windfalls will only apply to the future and it cannot be retroactive. It cannot be used to get revenue from already accrued gains.
“However, it is not desirable and it is improper to extend taxation to an exchange rate gain when FGN will not lift a finger to compensate companies for exchange rate losses.”
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