President Buhari presenting the 2020 budget estimate to the National Assembly.
  • It is unrealistic by design –  Experts   •Deficit to hit about N5 trillion


Insanity is doing same thing all over and expecting different results. This statement seems apt for the Nigerian government from reactions to the 2020 budget. Nigerian governments have consistently but sadly proved not to understand a thing about the annual ritual of budget design, process and implementation, but the challenge has become really acute and worrisome since this government, which has failed badly in managing process.

With the considerable confidence, optimism and fan-fare that trailed the presentation of the budget on Tuesday October 7, 2020, many Nigerians expected a major break-through in the economy; but again their hopes as in the past may have been dashed even before the budget is signed.   Analysts, who have reviewed the budget since its presentation, described it as a wilful error, unrealistic by design and a tall ambition to fully implement.

If this assertion were to be wrong, then the government spending plan for 2020 ought to have been a bit different for all it is worth. This would have been so having noticed what triggered underperformances in the previous budgets. The pro-poor pretension of the present government has not matched its achievement so far, some policy analysts said.

At a budget review session last week, analysts believed that trend, of course, is a guide to forecast but past record of Nigeria’s budget performance has not been impressive in decades. Perhaps, this may be more generic than most people thought and could derived from a patent suspicion of data used for the preparation of the budget.

A day after presenting the budget, President Buhari charged the new Economic Advisory Council, EAC, headed by Prof. Doyin Salami, that they should develop an indigenous or local data base for the country as most existing figures on the country are foreign generated.

The review of the proposed budget shows that based on past records of performance the proposed N10.33 trillion spending plan for 2020 is filled with quite a number of exaggerated assumptions. Most members of the National Assembly also recognised this fact in their various comments regardless of party affiliations.

Calculations show that at N305/$, the budget translates to $33.869 billion equivalent, or $169 per Nigerian for the fiscal year 2020. That is N51,260 per head for a fiscal year. It was noted that the budget design was anchored on “other revenue” sources, a drastic shift away from petrol-dollar income financing. This is appositive but the challenge is can the nation bank on realising such revenues.

However, fiscal records show that in the last five years, ‘other revenue’ sources have not exceeded over N500 billion annually. But FG estimated to rake in N3.7 trillion to finance the budget in 2020. Well, this could derive from the renewed attention given to taxes and duties. Last month the CG of Customs said that the border restriction has raised duty collection to an unprecedented average revenue of N3 billion daily.

Federal Government expects to generate revenues of N8.15 trillion, which comprises of oil revenue of N2.64 trillion, non-oil tax revenues of N1.80 trillion and other revenues of N3.70 trillion. According to the president, the 2020 revenue figure is 7% higher than the 2019 comparative estimate of N7.59 trillion, inclusive of government-owned enterprises.

Meanwhile, the expenditure estimates include the statutory transfer of N556.70 billion, non-debt recurrent expenditure of N4.88 trillion, including N2.6 trillion on debt service and N2.14 trillion of capital expenditure excluding the capital component of statutory transfers. Analysts, however observed that debt service is estimated at N2.45 trillion, and provision for a sinking fund to retire maturing bonds issued to local contractors is N296 billion.

Breaking down the N556.70 billion budget for statutory transfers, the National Assembly gets N125.00 billion, the Judiciary gets N110.00 billion, N37.83 billion for North-East Development Commission (NEDC), N44.5 billion for Basic Health Care Provision Fund (BHCPF), N111.79 billion for the Universal Basic Education Commission (UBEC); and N80.88 billion for Niger Delta Development Commission (NDDC).

WSTC Securities in a review stated that the non-debt recurrent expenditure is to be spent on personnel and pension cost amount to N3.60 trillion, which is a 21% increase of N2.98 trillion in 2019.

“The increase reflects the new minimum wage as well as proposals to increase the remuneration of the Police and Armed Forces”, analysts at WSTC Securities noted.

The budget for capital expenditure, on aggregate terms, is N2.46 trillion inclusive of N318.06 billion in statutory transfers, which is 23% lower than N3.03 trillion budgeted for capital expenditure in 2019. According to the President, the Federal Government focus in 2020 will be on the completion of many ongoing projects, rather than commencing new ones.

However, it should be recalled that the 2020 capex contains 68 percent of2019 capex brought forward. As such only 32 percent of 2019 capex has been implemented during the current year.

The President further added that sequel to the launching of the Road Infrastructure Tax Credit Scheme (RIFRIC) approval has been made for the rehabilitation and construction of 19 roads and bridges of 794km across 11 states. According to the President, the Scheme has attracted N205.00 billion worth of private investments.

CardinalStone Partners stated that this track record is not consistent with FG’s plan to generate about N3.7 trillion from ‘other revenues’ in the coming fiscal year. The firm also observed that the proposed 2020 budget adopted a $57 per barrel oil benchmark price, which represents a $2 increase from the benchmark outlined in the medium term expenditure framework (MTEF) document. This increase was made to accommodate the N700 billion addition to the budget by NASS.

However, the oil production and exchange rate estimates remained aligned with the MTEF assumptions of 2.18 mbpd and N305/$. GDP and inflation forecasts were held at 2.93% and 10.81% respectively. They believe that Nigeria has not reached the 2 million production mark under this government and it would have been safer to stay at the present quota of 1.8 mbpd.

In line with the proposed increase in the oil benchmark price and the VAT rate, the Federal Government (FG) estimated revenue of N8.1 trillion in the 2020 budget document is about N500 billion higher than MTEF forecasts (N7.6 trillion) and about N600 billion higher than the provision of the 2019 budget (N7.5 trillion).

According to Cardinalstone, the upward revision of oil benchmark price resulted in a N270 billion increase in projected oil revenue to N2.6 trillion as against MTEF forecasts.  Similarly, non-oil tax revenue is now projected at N260 billion higher than MTEF forecasts on the back of the proposed VAT increase.

“We highlight that, for the first time, the bulk of FG’s revenue is expected to come from “other revenues”. These are revenues other than oil and non-oil tax revenues”, and it makes the hope risky, analysts at CardinalStone stated.

The investment firm stated that these revenue sources include; independent revenue, FGN balances in special levies accounts, signature bonus/renewals, domestic recoveries assets, fines; earmarked funds, stamped duty, grants and donor funding.

‘Other revenues’ of N3.7 trillion budgeted accounts for 45.6% of total FGN revenue, analysts’ reviews revealed. Cardinalstone said that Nigeria is likely to record a higher than projected budget deficit in 2020.

The budget deficit including project tied loans at total of N2.18 trillion in the proposed spending plan is marginally higher than MTEF’s forecast but below the 2019 budgeted deficit of N2.5 trillion.

The deficit represents 1.5% of estimated GDP and is well below the 3 .0% threshold set by the Fiscal Responsibility Act of 2007. However, the revenue capacity of the government has been the challenge as debt has been rising at alarming pace.

“Meanwhile, as alluded to earlier, the dependence on other revenue sources leaves room for significant underperformance on the revenue front, which could also lead to an increase in budget deficit and associated borrowings”, CardinalStone said.

Thus, future debt service obligations are likely to be higher as debt service accounted for 54.3% of actual FG revenue in 2018. Furthermore, the prospect of a higher debt service burden will have the opportunity cost of lower capital expenditure spending and difficulty of reaching GDP growth expectation.

Increased revenues from finance bill that proposes VAT rate hike to 7.5% from 5.0% is would have marginal effect on the revenue side.  This is because of the fact that bulk (85%) of revenues generated from VAT will accrue to the state and local governments, while the remainder will be remitted to the FG.

On the other hand, the VAT increase is also expected to help states implement the new minimum wage increase.

Experts at WSTC Securities believe that the core budget assumptions are in line with current realities. According to WSTC Securities, the benchmark crude oil price of $57 is moderate and below our crude oil price forecast of $58 – $63.

The investment securities firm also posited that the oil output projection is relatively rational. Although the OPEC has capped Nigeria’s daily output to 1.7mbpd, analysts think that the output will be further supported by about 300,000 barrels per day of condensates whose production is not under the control of OPEC.

“We remain cautious on the outlook of other revenue lines, particularly the non-oil revenue and other revenue which we postulate to be from independent sources and revenue from government-owned enterprises.

“Over the last two to three years, total government revenue had always fallen short of budgeted revenue by about 46%. If past trends is anything to go by with, we might see a budget deficit of about N4.75 trillion which would be about N2.57 trillion higher than the estimated N2.18 trillion budget deficit.

Analysts have often attributed unrealistic budget assumptions as key reason for government budget failure. Again, budget 2020 is toeing the same path, not different from the usual ambitious plan.


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