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Nigeria's 2020 budget: the challenge of generating revenue & budget sustainability

By Abdulwasiu Mujeeb

 

Nigeria's President Muhammadu Buhari on the 8th October 2019 presented the budget for the next 2020 fiscal year, before the joint sitting session of the ninth National Assembly. The budget, which was said to be aimed at sustaining growth and job creation is based on an estimated oil price benchmark of US$57 per barrel, with the daily oil production estimate of 2.18 million barrels per day (mbpd) and an exchange rate of N305 per US Dollar. This will determine the socio-economic direction of the government and has huge implications for the economic outcomes for the year 2020.
 

The president, while presenting the budget introduced to the national assembly a finance bill for consideration and passage into law, so as to give effect to the proposed increment in value added tax (VAT) rate which the budget seeks to achieve.

It’s worth noting that at a time of subsisting domestic and global economic challenges, the budget is an expansionary of the recurrent expenditures with the recognition of domestic realities relating to payment of the new minimum wage and servicing of public debt which has become worrisome. With the proposed expenditure estimated for ₦10.33 trillion which includes statutory transfers of ₦556.7 billion, non-debt recurrent expenditure of N4.88 trillion and ₦2.14 trillion of capital expenditure (excluding the capital component of statutory transfers), the sum of ₦8.155 trillion is estimated as the total Federal Government revenue in 2020 and comprises oil revenue of ₦2.64 trillion, non-oil tax revenues of ₦1.81 trillion and other revenues of ₦3.7 trillion.

As part of the federal government's plan to invest critically in infrastructural development, the 2020 budget emphasises mainly on the completion of the ongoing projects across the country, rather than commencing new ones. It reflects in its ₦262 billion, ₦127 billion, ₦123 billion, ₦112 billion and ₦100 billion allocated respectively to works and housing, power, transportation, universal basic education, defence and zonal intervention projects, while other sectors like education, health, agricultural, interior and trade/investment gets less with ₦48 billion, ₦46 billion, ₦83 billion and ₦40 billion.

 

The challenge of generating revenues

The president of the senate, Ahmad Lawan has identified revenue generation as a major challenge of the budget, and according to him, the successful implementation of the budget may be difficult to realise until proactive measures are taken to address the situation.

“We are seriously challenged in the area of generating revenues, and it appears that until something drastic is done, this shortage of revenue will continue to militate against the implementation of the budget,” said the senate president during second reading of the budget appropriation bill on the floor of the senate.

He added: “We have to continuously engage the revenue-generating agencies and schedule quarterly evaluation to be handled by our relevant committee, particularly the senate committee on finance. It is a serious challenge when only thirty per cent is devoted to the capital budget, though an improvement from what we inherited from 2014 when the allocation was fifteen per cent. But that is not to say we cannot do better.”

Moreover, the national assembly also drew the attention of its members to certain areas that needed some tweaking to enhance the economy. They described the figure of N2.14 trillion proposed in the budget as capital expenditure as too insufficient to stimulate the Nigerian economy along a trajectory that guarantees growth. They also claimed the need to diversify the economy away from oil so as to change the country's approach to planning, revenue generation and budgeting.

 

Nigerians and the fear over budget sustainability

According to the African Report, Nigeria’s revenue service pulled in just 58% of the targeted amounts this year, fuelling the fears that the target may not be met after all. The government’s spending plan is also based on the country pumping an average of 2.18 million barrels per day (bpd) at an average price of $57 a barrel. It also assumes the official exchange rate will stay constant at ₦305 to $1.

But due to the fluctuating oil revenues, several provisions of the 2019 budget were not implemented, a problem acknowledged by the president himself. Daily oil production averaged 1.86bpd as at June 2019, as against the estimated 2.3bpd that had been forecast.

 Analysts had opined that the only way to achieve the government’s ambitious tax revenue targets would be a wide-ranging restructuring of the tax system with far more accountability.

In the view of Muda Yusuf, Director General of the Lagos Chamber of Commerce and Industry, while the executive arm of government and the national assembly have demonstrated an unequivocal commitment to return to the January – December cycle for the federal government budgets, the key assumptions behind the budget are realistic except for the exchange rate assumption of ₦305 to the dollar.

In his words, “this is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens. The 2020 budget numbers underscore the need to be more innovative in boosting revenue, reducing leakages and ensuring that revenue generating agencies of government remit what is due to government. We need to do things differently if we must get a different result”.

Echoing similar sentiments, many groups and organizations in the country, most especially the Action Aid Nigeria (AAN) a non-governmental organization, has followed the budget with keen interest and decried the abysmal capital allocations of ₦83 billion to agriculture, ₦46 billion to health, ₦48 billion to education and ₦30 billion to the Social Investment Programme. The AAN says these allocations are not adequate to fund these key sectors due to their importance in solving the national and social-economic challenges. These also portrays the continued downward trends in the government allocations to these sectors.

 

Writers