On Tuesday last week, October 8, President Muhammadu Buhari delivered the Federal Government’s 2020 budget proposals before a Joint Session of the National Assembly in Abuja. Even though this presentation was earlier expected in September, it is an improvement over previous years and it makes it very possible that the country will finally return to the normal January to December budget cycle.
President Buhari tagged it ‘Budget of Sustaining Growth and Job Creation.’ Sustaining the current levels of growth and job creation will not take Nigeria out of the doldrums; a much faster pace of growth and job creation is needed. This assertion is borne by the figures the president reeled out of this year’s budget performance. He said our economy has recorded nine consecutive quarters of GDP growth. This “growth” however, was from 0.82 percent in 2017 to 1.93 percent in 2018 and 2.02 percent in the first half of 2019. This, when some non-oil producing African countries are recording annual growths of 5% and more.
Buhari also said inflation reduced from 18.72 percent in January 2017 to 11.02 percent in August this year. That is still too high. Our external reserves, he said, rose from US$23 billion in October 2016 to US$42.5 billion in August 2019, due to higher international oil prices and improved security in the Niger Delta region. The naira’s exchange rate to the dollar remained stable at a very low level, while inflows of foreign capital into the Nigerian economy improved from US$12 billion in the first half year of 2018 to US$14 billion this year.
The performance of this year’s budget, as outlined by Buhari, is quite poor. It is based on US$60 per barrel benchmark oil price, oil production of 2.3 mbpd and an exchange rate of N305 to the US dollar, with a projected deficit of N1.918 trillion. As at June however, Federal Government’s actual aggregate revenue was N2.04 trillion or only 58 percent of the target. Buhari attributed this to “underperformance of both oil and non-oil revenue sources…oil revenues were below target by 49 percent as at June 2019” due to “lower-than-projected oil production, deductions for cost under-recovery on supply of premium motor spirit (PMS), as well as higher expenditures on pipeline security/maintenance and Frontier exploration.”
Although Buhari did not cite figures, this “under recovery on the supply of PMS,” official euphemism for fuel price subsidy, is clearly a gaping hole in government finances. Government may never be able to balance its books until this opaque policy is sorted out once and for all. Other factors that he said made for poor budget performance include low oil production of 1.86 mbpd instead of 2.3 mbpd, failure to realise revenue from restructuring of Joint Venture Oil and Gas assets, as well as lower VAT receipts “due to lower levels of activities in certain economic sectors.” He said 2019 Budget implementation “was also hindered by the combination of delay in its approval and the underperformance of revenue collections.”
This year was therefore not rosy, by the president’s admission. Nigerians therefore expect a much-improved budget performance next year in order to ameliorate hardships and accelerate economic growth. The president said he expects “enhanced real GDP growth of 2.93% in 2020.” The government’s draft Finance Bill however proposes to increase VAT rate from 5% to 7.5, a very controversial move indeed, which Buhari said will be used to fund health, education and infrastructure.
Other controversial items in the budget include hefty statutory transfers of N125 billion for the National Assembly; N110 billion for the Judiciary and N80 billion for the Niger Delta Development Commission (NDDC), despite its reputation for waste and lack of accountability. The N37 billion voted for the North East Development Commission (NEDC) is however small given the level of destruction in that region. Personnel and pension costs are to increase by N620.28 billion next year due to the new minimum wage as well as improved remuneration for soldiers and policemen. Buhari also spoke about stopping Federal Ministries, Departments and Agencies from creating Zonal, State and Liaison Offices which greatly increase overhead costs.
The biggest capital allocations in the 2020 Budget go to Works and Housing, N262 billion; Power, N127 billion; Transportation, N123 billion; UBEC, N112 billion; Defence, N100 billion and Zonal Intervention Projects, N100 billion. We therefore look forward to urgent completion of on-going capital projects in these sectors which, together, should accelerate the pace of economic growth.