As federal lawmakers and the business community mull the N10.33 trillion 2020 budget proposals presented by President Muhammadu Buhari last week, optimism on its capacity to deliver progress comes mostly from the government’s corner. Some have hailed the ambition to increase non-oil revenue. Critics however fault some of the budget’s key assumptions, revenue targets, deficit, poor allocation to infrastructure and mounting debt service obligations. Consideration of the spending bill is, however, an opportunity for the government and the National Assembly to shape the estimates into a more effectual plan capable of stimulating economic growth.
One positive note is the apparent determination of the executive and the legislature to return the country to the January-to-December budget cycle that has been derailed since the outset of the Fourth Republic. This year’s budget, for instance, was only signed into law at the end of May and Buhari said only N294.63 billion had been released for capital projects by September 30. This is tragic for a country with very poor infrastructure, a 23.9 per cent jobless rate and successive quarters of barely two per cent Gross Domestic Product growth. Without sacrificing the expected parliamentary rigour, the 2020 appropriation bill should be speedily passed to, at least, ensure some order into the disorderly fiscal planning of the past.
Yet, experts espouse the importance of government budgets in planning, boosting economic activities, eliminating poverty, creating jobs, allocating resources and in GDP growth. A World Bank report credited the formulation of effective national budgets and long-term planning for the rapid industrialisation achieved by the four Asian Tigers – Hong Kong, Singapore, South Korean and Taiwan – in the second half of the 20th century.
Nigeria’s failure to halt poverty and transit to industrialisation is partly blamed on her inability to formulate and implement efficient fiscal plans. Though the government is confident on the budget anchors, some critics see them as unrealistic based on past experience. Assumed oil price at $57 per barrel is, potentially a weak link if prices crash. Though Nigeria has neither control nor influence over the price of its major export earner and budget revenue stream, planners are however encouraged by the current persistently $57-61 per barrel price range despite the usual global political and security upheavals. Second, though revenue projections fell short by 47.8 per cent in 2017, 44.7 per cent in 2018 and 41.6 per cent by half year 2019, Buhari has gone ahead to project revenue inflow of N8.15 trillion in 2020, 17.1 per cent more than the N7 trillion projected in 2019 and double the N4 trillion realised in 2018. There was also a deficit of N1.35 trillion by the end of June, representing 70 per cent of the projected full year deficit, casting doubt on the N3.7 trillion “other revenues” expected in 2020.
Salvation for the country will lie in promoting non-oil exports to rise faster to catch up and surpass oil revenues. Buhari disclosed that both oil and non-oil revenues reached only 58 per cent target in 2019. The government is targeting a 90 per cent increase in non-oil receipts over the next three years. The National Bureau of Statistics reported N577 billion from non-oil exports in Q1 2018, 12.3 per cent of total exports of N4.69 trillion for the quarter. Significantly, expected non-oil revenue at N1.81 trillion is robust as it is chasing the N2.64 trillion expected from oil revenues, a marked improvement over the gap of previous years. This is encouraging.
Officially, oil production averaged 1.86 million barrels per day in 2019 against the 2.3 million bpd projected and meeting the 2.18 million bpd anchor of 2020 means relying on condensate production, which is not captured in the agreed OPEC quota of 1.77 million bpd. Officials also admit that expected higher returns from the value added tax 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.
Bloomberg reckons that though total debt is an acceptable 19.4 per cent of GDP, a recent approval by the National Assembly to raise borrowing limit may push the deficit and debt servicing beyond the projected N2.8 trillion and N2.45 trillion respectively. The budget also fails the test on the key imperative of raising capital expenditure, continuing instead, the self-defeating practice of ploughing the bulk of resources into a parasitic bureaucracy and to serve public officials. 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. The Minister of Works and Housing, Babatunde Fashola, has already raised the alarm that the N262 billion provided for the ministry falls short of the N306 billion owed to contractors for ongoing projects.
Though tagged “Budget of Sustaining Growth and Job Creation,” there is scanty hope that the budget will make any impact on the country’s unemployment and underemployment rates. While the plan is silent on any cost-cutting plan, it increases recurrent spending (non-debt) to N4.88 trillion, including a general wage increase for a public service notorious for incompetence and corruption that brings personnel costs to N3.6 trillion, 35 per cent of the budget. Buhari cites “privatisation proceeds” in the expected sources of funding the deficit when he has not undertaken any major privatisation since he assumed office in 2015.
Real change will require massive privatisation to reduce costs and raise money; there should be a drastic reduction in the size of the public service. Buhari should also fulfil his campaign promise of reducing the Presidential Air Fleet. Brazil ramped up infrastructure spending from 2017 to tackle a slowdown, while India aims at spending $200 billion on infrastructure funded by the public and private sectors from 2019 onwards.
The emphasis in 2020, here too, should be on raising and faithfully implementing the capital vote, with priority accorded to quickly completing critical infrastructure projects.
