By Cross Udo and Godwin Okoro
President Muhammadu Buhari has written to the House of Representatives seeking an increase in the 2022 budget deficit to be financed through borrowing from the domestic market.
Buhari said this in a letter read by Speaker Femi Gbajabiamila during plenary yesterday.
This came just as the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has proposed a reduction of the statutory allocation to the Federal Government by 3.33 percent and a marginal increase of states allocations to 3.07 percent and 0.44 percent for local government areas.
The new proposed adjustments to the revenue allocation formula due to the federating units are contained in a report presented to President Buhari yesterday by the RMAFC at the Presidential Villa in Abuja.
Speaker of the House, Femi Gbajabiamila, who read the letter during plenary said a revised 2022 fiscal framework submitted by the President for urgent legislative action indicates that the total budget deficit is projected to increase by N965.42 billion to N7.35 trillion.
He said this represents 3.9 percent of the Gross Domestic Product (GDP), adding that the incremental deficit would be financed by borrowings from the domestic market.
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Buhari seeks revision of the 2022 fiscal framework
…as a budget deficit to rise by N965.42bn
The letter reads, “As you are aware, there have been new developments both in the global economy as well as in the domestic economy which have necessitated the revision of the 2022 Fiscal Framework on which the 2022 Budget was based.
“These developments include spikes in the market price of crude oil, aggravated by the Russian-Ukraine war, significantly lower oil production volume due principally to production shut-ins as a result of massive theft of crude oil between the production platforms and the terminals.
“The decision to suspend the removal of Petroleum Motor Spirit (PMS) subsidy at a time when high crude oil prices have elevated the subsidy cost has significantly eroded government revenues. There is also the need to make adequate provisions for the recent enhancements of allowances for officers and men of the Nigeria Police Force to boost their morale as they grapple with heightened security challenges in the country.
“Following these developments, it has become necessary to adjust the fiscal framework, and accordingly amend the 2022 Appropriation Act to ensure its successful implementation. The adjustments to the 2022 Fiscal Framework include: An increase in the project oil price benchmark by US$11 per barrel from US$62 per barrel to US$73 per barrel;
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“A reduction in the projected oil production volume by 283,000 barrels per day from 1.883 million barrels per day to 1.600 million barrels per day. An increase in the estimated provision for PMS subsidy for 2022 by N3.557 trillion, from N442.72 billion to N4trn.
“A cut in the provision for federally funded upstream projects being implemented by N200bn, from N352.80bn to N152.80bn. An increase in the projection for Federal Government Independent Revenue by N400bn; and, an additional provision of N182.45bn to cater to the needs of the Nigeria Police Force.
“Based on the above adjustments, the Federation Account (Main Pool) revenue for the three tiers of government is projected to decline by N2.418trn, while FGN’s share from the Account (net of transfer to the Federal Capital Territory and other statutory deductions) is projected to reduce by N1.173trn.
“However, the amount available to fund the FGN Budget is projected to decline by N772.91bn due to the increase in the projection for independent revenue (Operating Surplus Remittance) by N400bn.
“Aggregate expenditure is projected to increase by N192.52bn, due to increase in personnel cost by N161.40bn and other service wide votes by N21.05bn (both for the Nigeria Police Force), additional domestic debt service provision of N76.13bn, and net reductions in Statutory Transfers by N66.07bn, as follows: NDDC, by N13.46bn from N102.78bn to N89.32bn; NEDC by N6.30bn from N48.08bn to N41.78bn.
“UBEC by N23.16bn from N112.29bn to N89.13bn. Basic Health Care Fund by N11.58bn from N56.14bn to N44.56bn; and NASENI by N11.58bn from N56.14bn to N44.56bn.
“Total budget deficit is projected to increase by N965.42bn to N7.35trn, representing 3.99 percent of the GDP. The incremental 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 amendments, I seek the cooperation of the National Assembly for expeditious legislative action on this request. Please accept, Rt. Hon. Speaker, the assurances of my highest consideration.”
As RMAFC slashes federal allocation to 45.17% in the revenue formula
Meanwhile, in the new revenue formula proposal by RMAFC, the Federal Government allocation was reduced from 52.68 percent to 45.17 percent; states will take 29.79 percent as against the previous 26.72 percent, while the council areas will now have 21.04 percent as against their previous 20.60 percent.
Receiving the report from the Chairman of the RMAFC, Elias Mbam, President Buhari said he would await the outcome of the ongoing constitutional review process before presenting the report of the review of the vertical revenue allocation formula to the National Assembly as a Bill for enactment.
The President in a statement issued by his Special Adviser on Media and Publicity, Chief Femi Adesina, said “ordinarily, I would have gone ahead to table this report before the National Assembly as a Bill for enactment.
“However, since the review of the vertical revenue allocation formula is a function of the roles and responsibilities of the different tiers of government, I will await the outcome of the constitutional review process, especially as some of the proposed amendments would have a bearing on the recommendations contained herein”, he said.
President Buhari listed some of the proposed amendments in the report as follows: ”Establishing local government as a tier of government and the associated abrogation of the state/local government account; moving airports; fingerprints, identification and criminal records from the exclusive legislative list to the concurrent legislative list, empowering the RMAFC to enforce compliance with remittance of accruals into and disbursement of revenue from the Federation Account as well as streamlining the procedure for reviewing the revenue allocation formula.”
The President assured members of the Commission that the Federal Government would immediately subject the report to its internal review and approval processes while awaiting the finalisationBuy of the efforts by the National Assembly.
According to the President this strategy, rather than issuing an Executive Modification order, as was done in 1992, is more in line with entrenching our democratic tenets.
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He commended the RMAFC for a job painstakingly done, pledging his unwavering commitment and support to them in carrying out their constitutional mandates.
The President also thanked Nigerians, especially the State and Local Governments, for making their input through the broad stakeholder engagement processes that produced the report.
“I am aware that the present revenue allocation formula has not been reviewed since the last exercise carried out in 1992.
“Considering the changing dynamics of our political economy, such as Privatisation, Deregulation, funding arrangement of Primary Education, Primary Health Care and the growing clamor for decentralization among others; we must take another look at our Revenue Sharing Formula, especially the vertical aspects that relate to the tiers of government.
“This becomes more compelling as we need to reduce our infrastructural deficit, make more resources available for tackling insecurity, confront climate change and its associated global warming and make life more meaningful for our rapidly growing population”, he said.
Buhari said as an advocate for grassroots development, he has always remained committed to ensuring that all tiers of Government are treated fairly, equally, and justly in the sharing of national resources.
“I want to let you all know that I have keenly followed most of the discussions held in the geopolitical consultative process and one thing that struck me was the agreement that a review of our vertical revenue formula cannot and should not be an emotional or sentimental discussion and it cannot be done arbitrarily.
“All over the world, revenue and resource allocation have always been a function of the level of responsibilities attached to the different components or tiers of government.
“I am, therefore, happy to note that the discussions were held along these lines and rested squarely on roles and responsibilities as spelled out in the 1999 Constitution (as amended).
“However, I also note that in reaching the final decisions at most of these engagements, not much emphasis was placed on the fact that the Second Schedule of the Nigerian constitution contains Sixty Eight (68) items on the Exclusive Legislative List and the remaining Thirty (30) items on the Concurrent List requiring both the Federal and State Government to address”, he said.
Buhari declared that for the nation to have a lasting review of the present revenue allocation formula there must first be an agreement on the responsibilities to be carried out by all the tiers of government.
In particular, he noted that the proposal seeks a 3.33 percent reduction in the current Federal Government allocation and on the other hand an increase of 3.07 percent and 0.44 percent for the states and local governments on the other hand.
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He added that concerning the Special Funds, the report by the RMAFC proposed an increase of 0.2 percent for the Federal Capital Territory (FCT) and a decrease of 0.38 percent for the development of natural resources.
“We must note the increasing visibility in Sub-national level responsibilities due to weaknesses at that level, for example, Primary Health Care; Basic Primary Education; Levels of insecurity, and; Increased remittances to state and local governments through the Value Added Tax sharing formula, where the Federal Government has only 15 percent and the states and local government share 50 percent and 35 percent respectively”, he said.
In his remarks, the Secretary to the Government of the Federation, Boss Mustapha, said the RMAFC followed due process in undertaking the exercise and sought the opinion of the Federal Government before finalizing the report.
Mustapha said, “Volume 1 contains the various memoranda submitted by the Federal and State Governments as well as the FCT. Volume 2 details the presentation from the academia, civil society, professional bodies, traditional rulers, individuals, as well as women and the youth council.
“To complete the inclusiveness of the stakeholder participatory processes adopted, Volume 3 is a research that captures the body of knowledge that supported the review while Volume 4 is a further distillation of submissions by the State and Local Governments as well as NGOs and Area Councils of the FCT”, he said.
Also speaking, Mbam said the leading philosophy behind the proposed review was guided “by the need for distributive justice, equity, and fairness as enshrined in relevant Sections of the 1999 Constitution (as amended)”.
He added that the principles took into cognizance the indivisibility of the country, public opinion, and weighted Constitutional responsibilities and functions of the three levels of Government.
He announced that the proposed vertical revenue allocation formula advised 45.17 percent for the Federal Government, 29.79 percent for State Governments, and 21.04 percent for Local Governments.
Under Special Funds, he said, the Report by the Commission recommended 1.0 percent for Ecology, 0.5 percent for Stabilisation, 1.3 percent for Development of Natural Resources, and 1.2 percent for the FCT.
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In arriving at the new vertical revenue allocation formula, Mbam told the President that the commission had wide consultation with major stakeholders, public hearings in all the geo-political zones, administered questionnaires and studied some other Federations with similar fiscal arrangements like Nigeria to draw useful lessons from their experiences.
Explaining the major reasons for the exercise, Mbam noted that since the last review was conducted in 1992, 29 years ago, the political structure of the country has changed with the creation of six additional States in 1996, which brought the number of States to 36.
Correspondingly, he said, the number of local governments councils also increased from 589 to 774.
“There have been considerable changes arising from the policy reforms that altered the relative share of responsibilities of the various tiers of Government such as deregulation, privatization and the lingering controversies over funding of primary education, primary healthcare”, he said.
The RMAFC chairman noted that while Section 32(b), Part 1 of Third Schedule of the 1999 Constitution 9 (as amended) empowers the Commission to review from time to time the revenue allocation formulae; the inadequate and decaying infrastructure, as well as heightened widespread internal security challenges across the country also necessitated the exercise, among others.
