Daniel Kanu
For the first time in many years, President Muhammadu Buhari-led government has returned the budget cycle fom January to December with the 2020 budget.
Perhaps, the Ninth Senate has achieved one of its key promises, which is the return of the budget cycle to January – December.
The assumption was that since Buhari’s ruling All Progressives Congress (APC) has the majority in both chambers of the National Assembly, it was expected that the budget would pass more speedily than its predecessors, so what happened was not a surprise to many observers.
Buhari, on Tuesday, December 17, while marking his 77th birthday, signed the 2020 Appropriation Bill into law. He had on October 8, this year, presented a budget proposal of N10.33 trillion tagged, “Budget of Sustaining Growth and Job Creation” at the joint session of the National Assembly in Abuja.
The Senate and the House of Representatives had on December 5, concurrently passed the budget, raising the total estimates from the proposed N10.33 trillion to about N10.6 trillion.
As it has always been with budgets there were key provisions and of the new total sum of N10,594,362,364,830, the parliament raised statutory transfers from the proposed N556.7 billion to N560,470,827,235; raised debt service from N2.45 trillion to N2,725,498,930,000; reduced recurrent (non-debt) expenditure from N4.88 trillion to N4,842,974,600,640; and increased development fund for capital expenditure from N2.14 trillion to N2,465,418,006,955. As part of the N264 billion increment, the National Assembly raised its own budget from N125 billion to N128 billion.
The passage of the 2020 Appropriation Bill was sequel to the presentation of a report by the Chairman of the Senate Committee on Appropriation, Barau Jibrin.
Capital expenditure is set at N2.46 trillion in total. Some of the important allocations include Works and Housing, N262 billion; Power, N127 billion; Transportation, N123 billion; Universal Basic Education, N112billion; Defence, N100 billion, Education spending, N48billion; and Health, N46 billion.
A move to increase Value Added Tax from five per cent to seven per cent has been debated after its announcement by the Federal Inland Revenue Service and approved.
The budget is based on a fiscal deficit of N2.8 trillion, which the government aims to finance with local and foreign borrowing.
The Federal Government’s spending plan is also based on the country pumping an average of 2.18 million barrels per day (bpd) at an average price of $57 a barrel. It assumes the official exchange rate will stay constant at N305 to $1.
Due to fluctuating oil revenues, several provisions of the 2019 budget were not implemented, a problem acknowledged by the president at the budget presentation. Daily oil production averaged 1.86bpd as of June 2019, as against the estimated 2.3bpd that had been forecast.
Even Buhari has warned that there would be “serious consequences” if the country’s revenue agencies missed their target again.
Some economic analysts say the only way to achieve the government’s ambitious tax revenue targets would be a wide-ranging restructuring of the tax system with far more accountability.
This, experts said, was because tax revenues have fallen well short of the target for the past three years. Over half of othe 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.
Some analysts are asking how the budget for 2020 will boost growth. The business community is even more skeptical given the fact that the Federal Government intends to also borrow to finance it.
While some observers applaud the budget, describing it as record-breaking there are those who say that the injection of the amount is a mere drop in the ocean, and will be incapable of stimulating the economy to higher growth, wealth creation and employment generation which the government is targeting.
The economy has grown by 2.01 per cent in the first half of this year. This shows that recovery is not yet overtaking population growth, says Macdonald Ukah, senior research analyst, at Lagos-based Kainos Edge.
“It suggests that investors have low confidence in policymaking. 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 of its revenues servicing debt obligations in the budget,” Ukah said.
Some analysts say the economy needs double-digit growth over a consistent period. The projected real GDP growth of 2.93 per cent 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 per cent to lift Nigerians out of poverty and reduce unemployment…. However, the capital investment required for this level of growth is 26-28 per cent of GDP…. The Federal Government is spending N2 trillion on capital projects…. It is mathematically impossible for the FGN to provide the fuel to reach 6-8 per cent growth.”
Economic analyst, Basil Okonkwo said that there was nothing to cheer about given the peoples’ expectation on improvement in education or healthcare among others. The reason he told Sunday Sun is that “the allocations for those critical areas that will impact positively on the lives of the people like education, health, etc are not much to make any reasonable impact.
“Just last month, the Senate decided to probe unremitted N20 trillion Stamp Duty by the Central Bank of Nigeria. Why can’t the FG order the CBN governor to remit such a huge sum into the Federation Account and use part of it to fund next year’s budget, increase amount in critical sectors like education, health, etc…why borrow?”
For Senator Gbenga Kaka, a budget may appear fascinating, but the challenge is in its implementation.
The lawmaker representing Ogun East Federal Constituency told Sunday Sun that every parameter that affects the budget must be taken seriously or else the outcome may be ruinous.
While commending the early approval of the budget, he urged all stakeholders to rise to the challenge in order to achieve the expected objective.
According to him, “beyond early approval of the budget by the National Assembly there are so many other parameters that determine budget implementation. If the budget is approved and the implementation strategy is faulty, then we are bound to have problems.
“Timely release of funds is a critical factor. As you know, money for the government comes in tranches on a monthly basis. If the priority of the government is skewed towards a particular programme, then the available money will be diverted to that place. So, there is need to synchronize the timing and priority of the government.
“We have what we call Medium Term Expenditure Framework. In that framework, there is an assumption that the average cost of our crude oil which is still responsible for about 80 per cent of revenue will be $54 or $55 per barrel. If in the course of the year, the price goes up to an average of $80 or $90 per barrel, we will have excess to spend. If on the contrary, it slides to as low as $30 the way it happened shortly after the inauguration of the APC-led government in 2015, then the economy may be at the risk of collapse because there will be no money to fund all the highlighted programmes.
“So, the Medium Term Expenditure Framework has to be followed in terms of pricing and the quantum of crude oil to be lifted. In the current budget, they are talking of 2.2 million barrels of oil production per day. If we are able to maintain the 2.2 million per day, our assumptions will hold. But if it falls below the projection either because of operational or market factor, then we are going to run into trouble.
“If there is an escalation of the crisis in the Middle East and the price is favourable to us, we will be smiling to the banks. We will have more than enough money to execute our projects and it will be unnecessary to be putting our neck in some of the loans they are seeking from left, right and centre. More importantly, there must be prudent management of resources. It is when we manage prudently that we get good results. If we continue in the business, as usual, we may not be able to deploy the available resources in a beneficial manner”.
Muda Yusuf, LCCI, Director-General, Lagos told Sunday Sun that there is not much to cheer about the 2020 budget, adding that there may be limited hope.
He said that the over 10 trillion budget is not a huge one considering the fact that Nigeria is the largest country in the continent.
Yusuf told Sunday Sun: “There is not much hope in the budget, but limited hope because obviously we have a major challenge with revenue and in an economy of our size we should not be doing a budget of that size. We are the largest economy on the continent we should not be having a budget that small, the budget is 10.33 trillion and if you convert it, it should be just about 22 or 23 USB dollars. It should be at least three times that budget in view of our size in the continent.
“You know the size of the budget also determines the impact that you get from it. So, obviously there is a major revenue problem, which has constrained the spending and that will obviously limit the impact that the budget can have on the economy, especially on infrastructure. When we talk about the budget the one that is so critical to citizens who are not workers is the impact of the budget on infrastructure and over the years we have seen the ratio of recurrent versus the capital expenditure, getting narrower. It is getting increasingly disproportionate by the day, where the recurrent is going higher by the day and the debt service also getting higher.
“When you take this two, it is almost equal to the total revenue, so you have to borrow to fund the few capital projects. There isn’t much to expect, we simply have to moderate expectation, we should not expect too much. And you know also that over the years even the little capital provision that we have implementation have been sometimes 50 per cent of the capital.
“So, for people in the private sector, the greater impact will be having the right kind of economic policies, have the right kind of regulatory environment, and having the right kind of institutions to support private sector investment. I think that is how we can get more impact from that than directly from the budget itself.
“But the problem is that we have challenges in those areas, we have issues in the regulatory environment, on the quality environment we also have an issue, the institutions not any of them is actually very supportive of investment, so there is a whole lot of shortcomings around all those factors.”
Some experts have argued that with Buhari’s new economic advisory team and his ambitious budget, there is a new urgency to the government’s policy response. They contend that state spending in Nigeria – per head – is still way below levels in economies such as South Africa and Kenya, and falls far short what is needed to drive economic growth, let alone to finance critical social investment in education and healthcare.
In all, aside from funding, it is believed that the 2020 budget faces the perennial challenge of lack of proper oversight of the implementation. This is because if there is no proper Monitoring and Evaluation of the execution of this budget, the so-called “Budget of Sustaining Growth and Job Creation” will be a mere mirage.