That 2020 budget won’t be same old story

The 2020 budget was passed into law with the government promising to implement same, but many are wondering whether or not it will be the usual government rhetoric; BENJAMIN UMUTEME reports.

Since Nigeria returned to democratic rule in 1999, it has been unable to fully implement its annual appropriation bill, thus making many to describe it as “a mere yearly ritual.”

The budget, which is an estimate of incomes and expenditures for a year, is an essential element in the planning and control of the financial affairs of a nation and is made necessarily (and essentially) because incomes and expenditures do not occur simultaneously (i.e., income or revenue receipts and expenditure flows do not always coincide).

The national budget sets out estimates of government expenditures and revenue for the financial year.

With the increasing importance of government expenditure in the economy, the annual budget is an important instrument of the government’s macro-economic policy. Fiscal changes have less to do with planned expenditure and more to do with decisions to modify the budgetary deficit (or at times surplus) in the interest of demand management (i.e., management of aggregate demand). Economic conditions sometimes require interim budgets.

Key assumptions of the 2020 budget

Oil production volume is projected to be average 2.18mbpd for 2020. Although this is lower than the projected oil production volume of 2.3mbpd for 2019.

A lower benchmark oil price of $57/b (against $60/b for 2019) is assumed considering the expected oil glut in 2020, as well as the need to cushion against unexpected price shock.

Our Real GDP growth projections are rates of 2.93% for 2020. Even though this falls short of the ERGP projection, the trajectory remains in the right direction.

Personnel cost (inclusive of Pension Costs) at well over N3.0 trillion has continued to rise. The FGN is however taking steps to contain the rising personnel costs, including an October 2019 deadline by Mr. President for all MDAs to implement IPPIS.

Same old song?

To underscore the importance of full implementation of the budget, President Muhummadu Buhari while signing the budget into law directed the Ministry of Finance, Budget and National Planning and all Federal Ministries, Departments, and Agencies (MDAs) to ensure its effective implementation.

But in reality, can the government match words with action?

The finance bill is targeted at increasing government revenue, however, the reality is that it will not impact significantly on federal takings, partly because the increase from five per cent to 7.5 per cent is not that large and also because only 15 per cent of VAT goes into the federal purse as the states take 85 per cent.

With actual oil production less than projected oil production, it means relying on condensate production, which is not captured in the agreed OPEC quota of 1.77 million bpd, is not realistic.

Financial analysts say implementing the budget might not just be as straight forward as may be envisaged as it fails the key imperative of raising capital expenditure, continuing instead of increasing recurrent expenditure.

According to figures from the budget, only N2.46 trillion or 20.71 per cent of the total outlay is earmarked for capital and 71 per cent for recurrent; past records also show how even the meagre sums earmarked for infrastructure are never fully released.

To give credence to this, the Minister of Works and Housing, Babatunde Fashola, raised the alarm that the N262 billion provided for the ministry in the 2920 budget falls short of the N306 billion owed to contractors for on-going projects.

The question many are asking is if contractors are not paid for ongoing project, how will they carry out the projects?

Another major challenge of funding the budget is the proposal by the government to borrow to fund the budget. While some continue to question government intention to continually borrow to fund its budget. Other noted that in spite all the talk about targeted borrowing, borrowings for the 2020 financial year does not reflect it.

Also, another source of worry for analysts is the plan by the government to use proceeds from the privatisation process to fund deficits in the budget. But the question that comes to mind is whither proceeds from the process will be enough to bridge the budgets’ funding gaps.

Moreover, with the government spending N2.45 trillion on debt servicing, compared with N2.14 trillion allocations for infrastructure, analysts say it will impact on the country long term developmental growth as it is unsustainable.

Question marks remain

For the Senate majority leader, Yahaya Abdullahi of the All Progressives Congress (APC), the budget as it is will not be able to boost growth

However, some senators have already criticised the submitted budget, saying they can’t see how it will boost growth.

According to an APC senator from Kebbi state, “The injection of this amount is a mere drop in the ocean and is incapable of stimulating the economy to higher growth, wealth creation and employment generation.

“But to do this, there must be robust investments in the real sector so that it could grow to earn taxable revenues.”

In fact, tax revenues have fallen well short of target for the past three years. Over half the country pays no direct tax at all, and income tax for the country’s richest business people is “an optional contribution to the state,” according to a Lagos banker who wished to remain anonymous.

Revenue, investment fall short

Nigeria is still recovering from a recession which it formally exited in early 2017, but growth has been lacklustre since then: 0.8% and 1.9% in 2017 and 2018, respectively.

 This shows that recovery is not yet overtaking population growth, says a senior research analyst at Lagos-based Kainos Edge, Macdonald Ukah.

 “This is on top of the unmistakable fiscal pressures in Nigeria’s low levels of revenue (cumulatively about eight per cent of GDP across all tiers of government) and the fact the federal government now spends more than half its revenues servicing debt obligations in the budget,” he said.

 Analysts say the economy needs double-digit growth over a consistent period. The projected real GDP growth of 2.93% falls far short. Hefty capital spending will be required to drive growth, says Andrew Nevin, advisory partner and chief economist at PwC Nigeria.

“Everyone agrees that we need growth of 6-8% to lift Nigerians out of poverty and reduce unemployment […]. However, the capital investment required for this level of growth is 26-28% of GDP […]. The Federal Government is spending N2trn on capital projects […]. It is mathematically impossible for the FGN to provide the fuel to reach six to eight per cent growth.”

Last word

In a telephone interview with Blueprint Weekend, an economist, Friday Efih, said “we might see an improvement in implementation if the political will is there.”

According to him, “For reasons best known to them they rather not want it to be implemented. Moreover, with oil revenue steady declining it is will be expecting magic from them if implementation is more that 60 per cent.”

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