“Budget of Sustaining Growth and Job Creation” is the year 2020 executive budget proposal that President Mohammadu Buhari presented to joint session of the National Assembly, Abuja on Tuesday, October 8, 2019.
When the President signed the 2020 Appropriation Act on December 17, 2019, the N10.59 trillion Budget consisted of N4.84 trillion recurrent expenditure, N2.46 trillion capital expenditure, N2.72 trillion for debt servicing, N2.28 trillion for fiscal deficit and deficit-to-Gross Domestic Product (GDP) ratio of 1.52 per cent.
The Appropriation Act was also predicated on projections of crude oil production of 2.18 million barrels per day, oil benchmark of $57, exchange rate of N305 to the dollar, gross domestic product (GDP) growth rate of 2.93 per cent, inflation rate of 10.81 per cent and the statutory transfer of N556.7 billion. The sum of N8.155 trillion is estimated as the total Federal Government revenue in 2020 comprises oil revenue N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion.
This is 7 percent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.
According to President Buhari “investing in critical infrastructure is a key component of our fiscal strategy under the 2020 Budget Proposals. An aggregate sum of N2.46 trillion (inclusive of N318.06 billion in statutory transfers) is proposed for capital projects in 2020”. Although the 2020 capital budget is N721.33 billion (or 23 percent) lower than the 2019 budget provision of N3.18 trillion, it is still higher than the actual and projected capital expenditure out turns for both the 2018 and 2019 fiscal years, respectively. Indeed, at 24 percent of aggregate projected expenditure, the 2020 provision falls significantly short of the 30 percent target in the Economic Recovery and Growth Plan (ERGP) 2017-2020.
Budget deficit is projected to be N2.18 trillion in 2020. This includes draw downs on projected loans and the related capital expenditure. This represents 1.52 percent of estimated GDP, well below the 3 percent threshold set by the Fiscal Responsibility Act of 2007, and in line with the ERGP target of 1.96 percent. The deficit will be financed by new foreign and domestic borrowings, Privatization Proceeds, signature bonuses and draw downs on the loans secured for specific development projects. In terms of debt servicing which has become one of this administration big criticism. 2020 budgets, provide the sum of N2.45 trillion for debt service, of this amount, 71 percent is to service domestic debt which accounts for about 68 percent of the total debt. The sum of N296 billion is provided for the Sinking Fund to retire maturing bonds issued to local contractors.
However, following the global oil prices crash and impact of the pandemic, the Nigerian government has amended the 2020 Appropriation Act to reflect the current economic realities as a result of the impact of the Coronavirus pandemic on the global economy. And the revised Budget is now N10.810 trillion as passed by the National Assembly.
According to The Minister of Finance, Budget and National Planning, Zainab Ahmed, with the “coronavirus pandemic triggering a global economic crisis, the fiscal assumptions behind the budget is no longer realistic. Since the outbreak of the coronavirus, growth in most economies has gone into reverse, with the worst impact felt by commodities-dependent economies like Nigeria, following the unprecedented decline in crude oil prices”. The Nigerian government said due to Brent crude oil price crashed to an all-time low of $19.125 per barrel as at Friday, April 3, 2020, while oil production in 2020 year-to-date has dropped significantly below 2.0 million barrels per day.”Because the 2020 Appropriation Act was based on certain fiscal assumptions, we have been compelled to revisit them given the emerging economic realities, “Accordingly, the projected oil revenues significantly affected, government has been compelled to revise the benchmark oil price for 2020 to $30 per barrel and oil production to 1.7 million barrels per day.
While the revised budget, in the words of the government would provide for the COVID-19 Crisis Intervention Fund and other adjustments required due to the decline in international crude oil prices. She said spending related to COVID-19 had not been previously captured.
The government made this known to the media, that the budget revisions approved at Federal Executive Council (FEC) meeting assumed an oil price of $25 per barrel along with output of 1.94 million barrels per day and an exchange rate of 360 naira to $1, a framework for its 2020-2022 spending plan. The proposals require parliament’s approval before being signed into law by the president.
With global oil prices plunging, the government had said this year’s budget would shrink by about 15% and that it would switch to domestic naira borrowings. Also, the government maintain, the reduction amounted to just 71.5 billion naira to “adequately respond to the COVID-19 pandemic”. Similarly, she said the government has also resolved to adjust downwards its non-oil revenue projections, including various tax and customs receipts as well as proceeds of the privatization exercises.”In this regard, the Budget Office is currently working on a revised 2020 – 2022 Medium-Term Expenditure Framework / Fiscal Strategy Paper (MTEF/FSP) as well as an Amendment to the 2020 Appropriation Act,” she said.
However, as of today, what has brought about this systematic reversal of the 2020 budget is courtesy of the COVID-19 pandemic and an oil price shock. Both phenomenon’s have magnified headwinds in the Nigerian economy, which relies on crude sales for government revenues, triggering a historic decline in growth and large financing needs as well as weakening the naira. While the coronavirus pandemic has opened the rots in health care provision in the country.
More so, the Nigerian government expects the economy, which recently recovered from a 2016 recession, to shrink by 3.4% this year.
The foregoing on 2020 budget has provide us an overview of what the revised key details of the budget.
Moreover, the concern of this piece is tasking the government making 2020 budget work implementable. The “global count of confirmed cases of COVID-19 has since passed the six million mark, close to half a million families have lost at least one member to the virus and numbers are escalating even in Africa., the world continues to battle the COVID-19 pandemic. Even before the outbreak, the outlook for the world economy and especially developing countries like Nigeria was fragile, as global GDP growth was estimated to be only 2.5 percent in 2020”. While many developing countries have recorded relatively fewer cases, Nigeria currently has over 20,000 confirmed cases and 500 plus deaths as of this writing, the weak capacity of health care systems in these countries is likely to exacerbate the pandemic and its impact on the economy.
According to CSEA, before the pandemic, the Nigerian government had been grappling with weak recovery from the 2014 oil price shock, with GDP growth tapering around 2.3 percent in 2019.
In February, the IMF revised the 2020 GDP growth rate from 2.5 percent to 2 percent, as a result of relatively low oil prices and limited fiscal space. Relatedly, the country’s debt profile has been a source of concern for policymakers and development practitioners as the most recent estimate puts the debt service-to-revenue ratio at 60 percent, which is likely to worsen amid the steep decline in revenue associated with falling oil prices. These constraining factors will aggravate the economic impact of the COVID-19 outbreak and make it more difficult for the government to weather the crisis.
There is need for more concerted efforts to make sure the 2020 budget is practical, realisable and functionally implementable without waste. Government should drastically shy away from the past norms that budget implementation is nothing to write home about. While we acknowledge the fact that the price shock on primary commodities dependent economy such as ours and the uncertainty of the global economy anticipate trouble for the economy. As a result of wrong policy choice to respond, majorly and over years in our health sector is caused by the country’s mediocrity in governance as the pandemic has expose the rots in our health care sector.
What is needed now is the proactiveness that would minimise waste and provide a basis for efficiency in the country’s economic governance and at least address the basic needs of the society. This involves returning the country to the path of sustained budgetary implementation, were every kobo spent is justified.
By: Adefolarin A. Olamilekan
Political Economist & Development Researcher and the Editor of Innovation Nigeria News Magazine.