Will 2020 budget impact positively on Nigerians?

The President, Major General Muhammadu Buhari (retd.) on Tuesday, December 17, 2019, while marking his 77th birthday, signed the 2020 Appropriation Bill into law. Buhari had on October 8, 2019 presented a budget proposal of N10.33tn tagged, “Budget of Sustaining Growth and Job Creation” for the Federal Government at the Joint Session of the National Assembly in Abuja. The Senate and the House of Representatives had on December 5, 2019, concurrently passed the budget, raising the total estimates from the proposed N10.33tn to about N10.6tn. The National Assembly had put a clause in the bill that the budget should run from January 1, 2020, bringing Nigeria back to a long desired  January-December budget cycle.

Of the new total sum of N10,594,362,364,830, the parliament raised statutory transfers from the proposed N556.7bn to N560,470,827,235; raised debt service from N2.45tn to N2,725,498,930,000; reduced recurrent (non-debt) expenditure from N4.88tn to N4,842,974,600,640; and increased development fund for capital expenditure from N2.14tn to N2,465,418,006,955. As part of the N264bn increment, the National Assembly raised its own budget from N125bn to N128bn.

The budget is based on an oil price benchmark of $57 per barrel, a daily oil production estimate of 2.18 mbpd. and an exchange rate of N305 per US Dollar. Along with the budget proposal, a Finance Bill was presented to the National Assembly for consideration and passage into law.  The draft bill proposes an increase of the VAT rate from 5% to 7.5%. The Finance Bill was passed by the Senate  on November 21, 2019. It amended seven existing tax and fiscal policy laws namely the Companies Income Tax Act, 2004; Value Added Tax, 2007; Customs and Excise Tariff Consolidation Act, 2004; Personal Income Tax Act, 2007; Capital Gains Tax Act, 2007; Stamp Duties Act, 2007; and the Petroleum Profit Tax Act, 2004. The 2020 budget revenues estimate is based, in part, on the new proposed VAT rate. The sum of N8.155tn is estimated as the total Federal Government revenue in 2020 and comprises oil revenues of N2.64tn, non-oil tax revenues of N1.81tn and other revenues of N3.7tn.

In passing the national budget on December 5, 2019, the National Assembly maintained Nigeria’s daily oil production rate at 2.18 million per barrel, it, however, increased the Oil Benchmark Price to $57 per barrel against the $55 proposed by the Executive. The National Assembly also retained the inflation rate at 10.81 per cent and the exchange rate at N305 – $1 as proposed by the executive. It also okayed GDP Growth Rate at 2.93 per cent as proposed.

Statistics apart, I am very happy and excited that in the 20 years since the return to civil rule, this will be just the fourth time that the Federal Budget was passed before the end of the outgoing year, and this is the earliest. Having a normal financial year will assist for proper planning and execution of the annual budget. My hope is that we will never experience a distorted budget cycle ever again. Kudos to the federal lawmakers and the executive arm for working in the national interest to pass the budget expeditiously within two months. This is a departure from the sorry past when budget passage took an average of six months.

With the 2020 budget taking off from January 1 of next year, there are concerns about implementation of the fiscal and monetary Act. The first major worry is about how to fund the budget. In the years gone by, the capital component of the budget often did not record up to 50 per cent implementation due to the paucity of funds unlike the recurrent expenditure including the overheads which get drawn down 100 per cent. There is going to be over N2tn budget deficit which the executive intends to borrow to finance the budget.  The good news is that the President of the Senate, Senator Ahmed Lawan, has promised that the Senate will pass the $29.96bn external borrowing plan of the Buhari regime. It is hoped that these funds, both the ones that will be earned locally and those to be borrowed from abroad, will be judiciously spent.

I am however worried that despite having this humongous 2016 – 2018 borrowing plan before the NASS, Buhari is still contemplating sending the 2020–2022 Borrowing Plan  to the National Assembly, in due course.

There are also some qualms about meeting our revenue projections from both oil and non-oil sectors. It is hoped that the price of crude oil in the international market will not fall below the benchmark of $57 per barrel estimate upon which the 2020 budget is premised. It is equally anticipated that the 2.18mbpd oil production supply will be met. If these two variables are not accomplished, it will cause dislocation and funding challenge for our budget. As it is said in economics, ceteris paribus meaning ‘’all things being equal,’ next year’s budget should perform better than this year’s own.

The question is, should we even be thinking about borrowing to finance our annual budget especially the 2020 Appropriation Act? The question arose from the fact that there are so many funding streams open to the Federal Government. Just last month, the Senate decided to probe unremitted N20tn Stamp Duty by the Central Bank of Nigeria. News has it that the Senate has mandated its Committee on Finance to investigate the non-remittance of over N20tn into the Federation Account by the Central Bank of Nigeria, an amount collected as stamp duties from Banks and Financial Institutions in the country. The decision to probe the non-remittance of stamp duties was reached sequel to the consideration of a motion on “The need to improve Internally Generated Revenue of the Federal Government of Nigeria through non-oil revenue”. Sponsor of the motion, Senator Ayo Akinyelure, (PDP, Ondo Central), said that the CBN had in January 2016, issued a circular directing all banks and financial institutions to charge stamp duty of N50 on lodgments into current accounts.

He noted that after the issuance of the said circular by the CBN, all deposit money banks and financial institutions effected N50 per eligible transaction in accordance with the provisions of the Stamp Duty Act 2004 and Federal Government Financial Regulations 2009. According to him, despite efforts by the Federal Government to recover over N20tn from Nigeria Inter-Bank Settlement Systems to the Federation Account, “the Central Bank of Nigeria and NIBBS have technically refused to comply with the Presidential directives for the recovery of over N20tn revenue into the coffers of government.”

Should this be true, why then are we planning to borrow N2tn to fund the 2020 budget? Why shouldn’t the FG order the CBN governor to remit the gagantuan sum into the Federation Account and use part of it to fund next year’s budget? Governor Godwin Obaseki in August this year said in the first six months of 2019, the nation lost about 22 million barrels of its crude oil production to oil theft. If we’re able to curb this menace, we should have funds to finance our budget than resorting to borrowing. It is even believed that the recently signed into law Deep Offshore and Inland Basin Production Sharing Contracts Act Amendment Act will significantly bolster government revenue. We have also been told that since Buhari ordered border closure in August, the Nigerian Customs has been recording exponential increase in revenue generation. It thus does not make economic sense to just borrow when you can actually block leakages and have sufficient fund to run the economy.

Aside from funding, the 2020 budget faces the perennial challenge of lack of proper oversight of the implementation. 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. Yet, what Nigeria hopes for in 2020 is better governance leading to significant improvement in their standard of living and not the cost of living.