Nigeria: Analysts Advocate Expansionary Budget, Govt Estimates N9.7tn in 2020

(file photo).
11 September 2019

Economic analysts yesterday expressed reservations over the federal government's projected budget of N9,789,243.466 for 2020, saying the figure ought to be more in the region of N12trillion.

The federal government had unveiled the draft 2020-2022 Medium Term Fiscal Framework (MTEF) and Fiscal Strategy Paper (FSP) with a projected total budget of N9,789,243.466 for next year.

It also expressed concern that the country faces significant medium term fiscal challenges, especially with respect to revenue generation and rapid growth in personnel costs.

The total budget (excluding that of government-owned enterprises, GOEs) is N8.907,940,657.001.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, who unveiled the 2020-2022 Medium Term MTEF/FSP, which guides government's fiscal plan, in Abuja, Tuesday, disclosed that the 2020 budget is predicated on certain key assumptions, including oil production of 2.18 million barrels per day (mbpd), a benchmark oil price of $55 per barrel, an exchange rate of N305 per dollar, and a projected revenue of N7.6 trillion.

It is also to be based on an inflation rate of 10.81 per cent, 2.93 per cent gross domestic product (GDP) growth rate and nominal GDP of N142.96 trillion

While the 2019 Budget is predicated on 2.3mbpd oil production and $60 per barrel benchmark, that of 2020 will have a lower daily oil production target and benchmark oil price.

Explaining, the minister said: "Oil production volume is projected to average 2.18mbpd for 2020. Although this is lower than the projected oil production volume of 2.3mbpd for 2019, we believe that this is a more realistic projection. For 2021 and 2022, the projections are 2.22mbpd and 2.36mbpd respectively

"Actual daily crude oil production and exports have been well below budget projections since 2013 despite installed capacity of up to 2.5mbpd, for a number of reasons. For 2018, actual production was 1.84mbpd and for the first half of 2019, it was 1.86mbpd (base production).

"A lower benchmark oil price of $55/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."

According to her, there are strong indications of an oversupplied market in 2020, adding that all three of the major forecasters- the Organisation of Petroleum Exporting Countries (OPEC), International Energy Association (IEA) generally see non-OPEC production growing by around 2mbpd in 2019 and even more in 2020.

Giving more highlights on the 2020 budget proposals, the minister put personnel cost (inclusive of pension costs) at over N3 trillion.

She noted that the federal government was, however, taking steps to contain the rising personnel costs, noting that all ministries, departments and agencies (MDAs) that are not hooked on the Integrated Payroll and Personnel Information Systems ((IPPIS)) will have their staff salaries stopped at the end of October.

Giving details of the 2020 budget proposals, Ahmed put the total revenue target at N7.6 trillion compared to 2019 revenue figure of N7.5 trillion.

The 2020 budget's capital expenditure will also decline from 32 per cent (N2.9 trillion) in 2019 to 21 per cent (N1.7 trillion).

She also hinted that in 2020, deficit is projected at N1.7 trillion to be financed from domestic and foreign borrowing shared equally at N850 billion apiece.

Details of the 2020-2022 (MTEF/FSP also indicate that capital expenditure will witness successive cuts for the three-year period to N1.76 trillion, N1.70 trillion and N1.68 respectively.

On the other hand, recurrent expenditure is expected to increase from N4.3 trillion in 2019 to N4.7 trillion in 2020.

The minister listed sources of additional revenue financing for 2020 budget proposal to include privatisation proceeds of N126.5 billion as against N201 billion in 2019; multilateral /bi-lateral projects tied to loans, N328.1 billion compared to the 2019 figure of N92.8 billion; new borrowings N1.7 trillion as against N1.6 trillion comprising domestic and foreign borrowing.

On expenditure, the federal government proposed statutory transfer stands at N526.4 billion as against N502 trillion figure of 2019; debt service of N2.4 trillion as against N2.1 trillion in 2019; and a sinking fund of N296 billion compared to the 2019 figure of N110 billion.

The federal government is also proposing a recurrent (non-debt) of N4.7 trillion compared to N4.3 trillion in 2019.

Of the amount, personnel cost (MDAs) is proposed at N2.6 trillion compared to N2.2 trillion in 2019.

The personnel costs of GOEs is put at N218.8 billion as against N160.5 billion in 2019 while overheads for MDAs is N280.2 billion compared to N268.1 billion in 2019.

Pensions, gratuities and retirees' benefits are to gulp N536.7 billion as against N528 billion provided in 2019.

The minister noted that the creation of five new ministries would shoot up recurrent expenditure in 2020 due to personnel cost and overheads.

On waiver and tax incentives, the minister said government was bothered about increasing waiver requests, adding that there would be a review, going forward.

She said: "We agree from the finance side that we have too many incentives and too many waivers. But our partners in the trade will not necessarily agree with us. We also agree that there has to be a review of the Pioneer Status Certificate issuance process because the waivers and the incentives are really costing us a lot.

"But when a decision has been made and approvals have been given, and a private business makes an investment decision based on those incentives, you can't pull it out overnight. So, there has to be a period within which the commitments that have been made are allowed to exit before you impose new conditions. But we are currently reviewing the quantum of waivers."

On the N614 billion bailout fund, which the federal government advanced to the states in 2016 as budget support facility, the minister said deductions would be made from source during the next Federation Account Allocation Committee (FAAC) meeting in about two weeks and remitted to the Central Bank of Nigeria (CBN).

"The recovery process for us is to deduct from the FAAC allocation to the states and then we remit to the CBN and we are going to start this remittances by the next FAAC, so there will be no requirement for us to consider the FSP (Fiscal Strategy Paper) implementation," Ahmed explained and added: "We do that as a matter of wanting the states to stay on the path of fiscal sustainability but it will not be a condition for the deduction. We will deduct direct at source and remit to the CBN."

The bailout was given to the states to help them pay salaries, gratuities and pensions. The CBN provided N614 billion in loans at 9 per cent with a grace period of two years.

Analysts Express Divergent Views

Reacting to the government's projected target, analysts yesterday expressed divergent opinions over its viability.

While some argued that an elevated budget was necessary to enhance capital formation and productivity, others said instead of increasing the budget, the government should pay more attention to its dwindling revenue.

For instance, a former Chief Executive Officer, Assets Management Corporation of Nigeria (AMCON), Mr. Mustafa Chike-Obi, told THISDAY that the projected budget was not expansionary, considering that the 2019 budget was N8.916 trillion.

"We should be looking at a budget of at least N12 trillion. So, I think this is not expansionary for me. In fact, if you look at it in real terms, inflation adjusted as well as in terms of forex, the budget has been getting smaller and smaller every year, since this government came into office," he explained.

But, the Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said what the country needs at this moment is to review its fiscal plan.

According to Chukwu, the current fiscal structure is not sustainable.

He said a situation whereby most of the expenses in the budget are funded from borrowing is not the best for the country and is not something that is sustainable in the long-run.

According to him, "If you look at the performance of the 2018 budget, federal government's recurrent expenditure was N5.85 trillion, while total revenue earned same year was N3.86 trillion, leaving a deficit of about N2 trillion. I believe 2019 budget would be same.

"So, increasing the budgeted figure without necessarily expanding the revenue base, for me, is not the fundamental issue for now. We are only going to end up borrowing more. If we continue this way, we are going to get to a point whereby debt service may even be as high as our revenue.

"So, I think we need to review our fiscal plan. I think the best way to go about this is for the government to step back from funding commercially viable infrastructure and develop a legal framework that would allow the private sector to fund some of those infrastructures that would enhance revenue in the country."

In his contribution, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, argued that the projected N9.789 trillion for 2020, was not even enough.

"It is a move in the right direction, but it is not enough. We should be talking about N12 trillion," he said.

According to Rewane, to increase capital formation and productivity in the country, an expansionary budget would be required.

He argued: "We need a minimum of N12 trillion annual national budget. We need N1.5 trillion for works; N1.5 for transport and we need enough funding for everything to do with infrastructure. If you don't do N1.5 trillion for transportation, you can't complete the railways and you will not get the productivity gain, if you don't do about N2 trillion on Works and Housing, you will not complete the road projects across the country.

So, we have to be bold about this."

However, the Managing Director/Chief Executive Officer, Afrinvest Securities Limited, Mr. Ayodeji Ebo, stressed that raising the budget was not going to be sustainable.

He said: "To continue to increase our expenditure on a year-on-year basis, while we continue to struggle in terms of growing our actual revenue is not the way to go. We shouldn't be looking at our budgeted revenue, but instead we should be looking at the actual.

"So, if government needs to see how to bring down its expenditure because recurrent expenditure as a result of the new minimum wage is still high. When you look at it, capital expenditure has always been at the receiving end, while total expenditure has continued to increase.

"Our actual revenue is lagging behind and that is what I think we should focus more on. The government needs to review the Private Public Partnership law that would give more comfort to foreign investors to bring in funds and they need to come up with policies to attract foreign direct investments."

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