Nigeria is navigating a treacherous financial strait that would make life more difficult for its citizens in 2020. The 2020 budget is a tall tale of the hard times just around the corner. The budget is built around a mountain of debts that would complicate the country’s debt servicing crisis.
Out of the N10.594 trillion to be spent during the year, the federal government expects to raise slightly above N8 trillion from oil and tax revenues. Budget deficit has therefore risen from the N1.9 trillion in 2019 to a record N2.28 trillion.
The National Assembly padded the budget by N260 billion. And the federal government has maintained a studied silence over the budget padding, apparently because Aso Rock is courting the law makers in a desperate bid to secure approval for its request for a gargantuan external loan of $29.9 billion.
Nigeria would borrow more in 2020, and might end up servicing debts with something close to N3 trillion during the year.
Government would therefore have very little to spend on the rehabilitation of dilapidated roads, a comatose rail system, an archaic healthcare delivery system that musters one of the world’s highest maternal and infant mortality rates and a decaying education system that keeps 13.5 million children of school age out of the classroom.
At N2.7 trillion, debt servicing out-weighs the capital budget by N300 billion. The implication of that dangerous mismatch for Nigerians in 2020 is that unemployment would worsen. That automatically would draw the breaks on the 2020 budget ambitious economic growth rate.
The World Bank believes that Nigeria must grow its economy at seven per cent per annum in the next 10 years if it must shed its repugnant toga of world’s headquarters of poverty.
With Nigeria remaining a one-handed economy, no one expects that to happen in the next five years. Nigeria would therefore push millions more below poverty line in 2020.
The federal government is desperate about raising its faltering revenue and in the process has been stampeded into tax reforms that would not only slow economic growth but would worsen the poverty rate in the country by pushing millions out of the nation’s porous banking network.
Some provisions of the Financial Bill recently passed by the National Assembly would achieve just that. Government in a desperate bid to raise its tax revenue from a paltry 6.5 per cent of GDP is slamming a law that requires all bank account holders to flash their tax identification number (TIN) as requirement for operating the accounts.
TIN is issued by the Federal Inland Revenue Service (FIRS) free of charge to tax payers. Those who are not taxable by virtue of their age or lack of income are supposed to get something that exempts them the way the National Youth Service Corps (NYSC) issues exemption certificates to university and polytechnic graduates who are above the age of 30 years.
The FIRS has no record of those exempted from taxation. Consequently, those who are not taxable due to age or low income would all have their accounts blocked by January 1, 2020, thus reducing their chances of obtaining even micro loans from a formal financial institution. That again would block their chances of getting stipends from friends and relatives who funded their miserable lives.
The new law would automatically turn the FIRS into something of a gold mine not for the federal government, but for its workers. TIN would be issued to the highest bidders who are desperate to maintain their accounts in the banks. The apathetic ones among the account holders would simply abandon their accounts for the architects of the infamous law and keep their money under their pillows.
The Central Bank of Nigeria (CBN) would be the first casualty of that obnoxious law. About 60 per cent of the cash in circulation in Nigeria is outside the banking system. That makes it difficult to control liquidity and tame inflation rate. When the apex bank mops up liquidity in the system at an enormous cost, the cash circulating outside banks is used to counter the CBN measures in a way that continuously keeps so much naira chasing the few dollars in the foreign exchange market. That partially explains why the naira depreciates persistently even when oil price hovered around $105 per barrel between 2008 and 2014. The new Financial Law would keep more cash outside banks and worsen CBN’s liquidity control crisis in 2020.
Architects of the 2019 budget set an ambitious inflation rate target of 9.98 per cent for the year. Last month inflation rate sailed perilously close to 12 per cent. When the National Bureau of Statistics (NBS) turns in the figures for December, inflation rate might cross the 12 per cent mark. The 2019 inflation target might be missed by as much as three percentage points.
The 10.81 per cent inflation target for 2020 is equally unattainable. The first hurdle against that target is the 50 per cent increase in value added tax (VAT). Providers of goods and services would pass the added cost to consumers thus pushing up inflation rates considerably.
The next factor is the new minimum wage. By 2020, the labour unions would stage a showdown with recalcitrant employers and compel them to implement the new wage. The new minimum wage would fuel inflation from two angles. Employers of labour in the organized private sector would pass the extra overhead cost to consumers of their goods and services by way of higher price tags. The additional wages would increase liquidity in the system and fuel inflation on its own as more naira chasing the few dollars in the forex market forces the naira to depreciate. In an import dependent economy like Nigeria, that would automatically translate to imported goods landing at higher cost.
From all indications, the man in the street would pay dearly in 2020 for government’s dwindling revenue and the stampeded moves to beef up the sagging income.
