Nigeria is undergoing a fiscal crisis epitomised by our inability to raise the revenue to substantially fund our budgets at the federal and state levels. We have become excessively reliant on unsustainable borrowing from domestic and international sources to finance our budgets. The country, in 2018, projected a retained revenue in the sum of N7,165.87bn but only realised N3,963.67bn, a shortfall of N3,202.20bn, being -45% variance from projections. In the same year, the Federal Government incurred debt and non-debt recurrent expenditures of N5,256.25; this shows that our actual recurrent expenditure was N1,2929.58bn more than our retained revenue. The trajectory for the 2019 budget implementation is not showing any better results. We already have a 30% negative variance on the realisation of budgeted revenue for the first half of 2019.
This discourse reviews what can be done to improve available revenue so that our federal budgets become realistic to fund infrastructure and the recurrent budget. A few of the neglected sources of increasing revenue will be highlighted and analysed. The fiscal terms of production sharing contracts entered into by the Nigerian National Petroleum Corporation and some international oil companies have been due for review for so many years but the authorities have pretended that they are unaware of the legal and policy provisions mandating the review. Under the Deep Offshore and Inland Basins Production Sharing Contracts Act (No. 9) of 1999, Section 16 (1) and (2) provides as follows: (1) The provisions of this Act shall be subject to review to ensure that if the price of crude oil at any time exceeds $20 per barrel, real terms, the share of the Government of the Federation in the additional revenue shall be adjusted under the Production Sharing Contracts to such extent that the Production Sharing Contracts shall be economically beneficial to the Government of the Federation. (2) Notwithstanding the provisions of subsection (1) of this section, the provisions of this Act shall be liable to review after a period of 15 years from the date of commencement and every five years thereafter.
This Act expressly underscores that the extant fiscal terms are not economically beneficial to Nigeria. According to reports of the Nigerian Extractive Industry Transparency Initiative, Nigeria loses the sum of $1.6bn per year due to the failure to upwardly review the fiscal terms in favour of the country. When this is exchanged into naira at the rate N360 to 1USD, it amounts to N576bn. The PSCs were entered at a time of very low oil prices when oil was selling at less than $20 per barrel. In Suit No. 964/2016, Akwa Ibom, Delta and Rivers states, through their Attorneys-General, had sued the Attorney-General of the Federation; the Supreme Court in October 2018 ordered the Federal Government to revisit the fiscal terms of the existing PSCs with International Oil Companies and embark on an upward adjustment of the share of revenues accruing to the FGN now that the price of crude oil has exceeded $20 per barrel. But nothing has come out of this judgement. This failure to review is extremely costly at a time the country finds it extremely difficult to fund the budget. Pray, is there any information available to the Federal Government which is not available to the public informing its refusal to upwardly review the fiscals due to it despite the huge revenue challenge?
Restructuring of the joint venture equity financing has been on the drawing board as one of the funding sources of the 2018 and 2019 federal budgets. However, this was not realised. Again, it is proposed in the MTEF 2020-2022. Whatever challenges delaying the implementation of this proposal which could fetch up to N1tn in new revenue should be removed. This is also related to the continuation of Joint Venture Cash Calls which in official government policies should have ended between 2016 and 2017. According to the fourth quarter and consolidated budget implementation reports for 2017 and 2018, Nigeria spent N1,236.98bn for Joint Venture Cash Calls in 2017 and N539bn in 2018. This is not sustainable as we need to exit from this cash calls and re-channel the resources to other pressing needs. The projected revenue realisable from the restructuring of the joint venture equity financing was N710bn each for the years 2018 and 2019. This is a revenue of about N1.420tn.
For over five years running, Nigerians have been paying stamp duties on all their banking transactions. Incidentally, the Federal Government has failed, refused and neglected to account for the accrued revenues. Attempts by so many patriotic Nigerians and civil society organisations in enquiring about the proceeds of this tax met stone cold silence and all manner of fables. However, the Federal Government in the MTEF 2020-2022 is proposing that N200bn, N350bn and N450bn will accrue from this source in the years 2020,2021 and 2022 respectively. And Nigerians are expected to start clapping. The Minister of Finance or any other responsible authority must explain to Nigerians what happened to the proceeds of this tax in the previous years. Nigerians are not foolish and the leadership owes us a duty to explain what happened to the proceeds. Further, just providing a paltry sum of N200bn for 2020 is not backed by empirical evidence. From the deductions most Nigerians suffer on a daily basis for their banking transactions, no fewer than N1tn should accrue to federal coffers every year from this tax. The challenge here is lack of accountability and outright mismanagement of the proceeds of the sweat of Nigerians.
Using N305 to 1USD as the benchmark for our budget is deliberately undercutting and mismanagement of available revenues. Everyone knows that maintaining this dual rate of N305 for a selected few while the bulk of Nigerians access foreign exchange at N360 is not a fit and proper practice in monetary policy. If the right thing is done by using N360 as the benchmark, the Federal Government stands the chance of raising not less than N500bn in new revenue which will be used to further reduce the deficit. Maintaining this dual exchange rate has been criticised by experts including international financial institutions. And the big and contentious one; government’s continued funding of oil subsidies makes no sense beyond sentiments and the emotionalism of thinking that it will hep the poor when in actual fact, it bleeds the entire country and worsens the plight of the poor – assuming the savings, if the subsidy is removed were to be well-managed. The savings will be in the region of not less than N1tn.
From this discourse, it is clear that we can raise N576bn from reviewing production sharing contract’s fiscals; N1.42tn from the restructuring of the joint venture equity financing; not less than N1tn annually from stamp duties and a proper account of the proceeds of previous years can yield not less than an additional N3tn; merging the dual exchange rates will yield not less than N500bn annually while removing fuel subsidy will fetch another N1tn annually.
The foregoing is based on existing laws and policies while new laws and policies when enacted can provide further sources of revenue. It is doable with the right political will.