It is obvious to all that a country is run on a budget which indicates the direction its government is headed. In Nigeria, that has not really been the case as implementation of past budgets seem to portray; BENJAMIN UMUTEME reports.
A government budget is a document prepared by the government and/or other political entity presenting its anticipated tax revenues (Inheritance tax, income tax, corporation tax, import taxes) and proposed spending/expenditure (Health care, education, defence, roads, state benefit) for the coming financial year.
Through the budget, the government implements economic policy and achieve its set target. Once the budget is approved, the use of funds from individual chapters is in the hands of government, ministries and other institutions. But in Nigeria, what is, has always been different from what ought to be.
The budgeting process in the country most times is seen as the more you look, the less you see due to the intrigues that surround not only its preparation, but also its implementation.
Budget 2020
On October 8, 2019, President Muhammadu Buhari presented the 2020 budget proposal at a joint session of the National Assembly. The budget was accompanied by the Finance Bill which the president also presented to the National Assembly for consideration and passage into law. The budget sought to achieve a seven per cent increase in the federal government revenue from the estimated revenue for the 2019 fiscal year, while the Finance Bill proposes an increase in value added tax (VAT) rate from five per cent to 7.5 per cent.
The budget, which is described as a budget for sustaining growth and job creation, is based on an estimated oil price benchmark of $57 per barrel, daily oil production estimate of 2.18 million barrels per day (mbpd) and an exchange rate of N305 per US Dollar.
President Buhari, while presenting the budget, disclosed that the 2020 budget is based on the proposed increase in VAT rate. Consequently, the Finance Bill will have to be passed into law by the National Assembly to give effect to the proposed increase in VAT rate. The president also revealed that the Finance Bill contains some notable provisions such as: the introduction of a threshold for VAT registration at N25 million in turnover per annum, thereby bringing relief to micro, small and medium sized businesses; an expansion of the scope of goods exempted from VAT to include brown and white bread, cereals, fish, flour, natural water and table water, etc; the introduction of certain tax incentives for investments in infrastructure and capital market.
However, due to the oil price war and Covid-19 pandemic that shut down production worldwide, Nigeria’s revenue dwindled considerably resulting in the federal government revising the budget as well as resorting to borrowing to finance the deficit in the over N10 trillion budget.
President Buhari explained that the budget had to be revised because of the impact of coronavirus on the nation’s economy. Noteworthy is the fact that the revised budget was increased from the proposed sum N10.509 trillion to N10.805 trillion, making a N296 billion difference from the amount sent by the President. The revision of the budget led to allocation to different MDAs drop. For instance, allocation to federal government’s basic health-care budget dropped from N44.4bn to N25.5bn, a decrease of more than 42.5 per cent.
2021 budget
In a bid to keep to its promise of implementing a January to December budget circle, the president went ahead to present the 2021 appropriation bill to the National Assembly for consideration and passage. According to him, at the budget presentation, government was also determined to deliver on key policies and programmes, noting that revenue generation remains a major challenge for the government.
“Nevertheless, government is determined to meet up with growing expenditure commitment through borrowing,” he said.
The 2021 budget with the themed ‘Economic Recovery and Resilience’ is aimed at promoting economic diversification and social inclusion, has predicated on Crude oil projected at $40bpd, exchange rate at N379 to $1, GDP at three per cent and inflation rate at 11.95 per cent.
The president further told the joint session of the house that “we are also accelerating the construction of 337 rural roads across communities to enhance local markets.”
He said government is accelerating the construction of 337 rural roads that are key to agriculture. He said the Itakpe-Ajaokuta rail line has been completed after 30 years of neglect. He said the Lagos-Ibadan rail will soon commence full operation while the Abuja-Kaduna rail is working well. He said he hopes to complete the construction of the second Niger Bridge before the end of his tenure In 2023.
“Second Niger Bridge is about 46 per cent complete and we hope to complete it before the end of my tenure in 2023,” Buhari said.
Bettering other sectors
Analysts say the early presentation of the budget by the President would enable the National Assembly to do a better job on the budget as opposed to what was obtained in years past.
A closer look at the budget revealed that Non-debt Recurrent Costs of N5.65 trillion (43% of the budget); Personnel Costs of N3.76 trillion (29% of the budget); Pensions, Gratuities and Retirees’ Benefits of N501.19 billion; Overheads of N625.50 billion; Debt Service of N3.124 trillion (24% of the budget); Statutory Transfers of N484.49 billion; Sinking Fund of N220 billion (to retire certain maturing bonds).
Of the total proposed 2021 budget of N13.08 trillion, non-debt recurrent expenses accounts for 43% (N5.65 trillion). The cost of governance remains a cause for concern, as the federal government personnel costs, pensions and gratuities account for 33% of the budget, i.e. N4.262 trillion.
To service its debt obligations, the federal government would be spending as much as 24% of the budget (N3.124 trillion), representing an increase of N445.57 billion from N2.68 trillion in 2020. Debt service obligation of N3.124 trillion, a total of N2.183 trillion (70%) has been set aside to service domestic debts, while N940.89 billion (30%) has been provided for foreign debt service. N220 billion is provided for transfers to the Sinking Fund to pay off maturing bonds issued to local contractors and creditors.
This, financial experts say, should be a major source of concern for the country’s fiscal authorities. The impact of all this, they say is that monies meant for development will be spent servicing debt.
Speaking at the public presentation of the breakdown of the 2021 budget in Abuja last weekend, minister of finance, budget and national planning, Mrs. Zainab Ahmed, disclosed that Nigeria will be borrowing about N4 trillion to finance the N5.16 trillion deficit in the budget.
This, Capital Market Professor, Uche Uwaleke, said is worrisome. In a chat with Blueprint weekend, Uwaleke noted that with M3 trillion already allocated to debt servicing, further borrowing will further put the country in a difficult situation.
He said: “The new borrowings of over N4 trillion to part finance a deficit of over N5 trillion is worrisome given the already huge amount of over N3 trillion allocated to debt servicing alone. Covid-19 notwithstanding, the deficit to GDP should have been kept within the three per cent threshold stipulated in the Fiscal Responsibility Act 2007.”
In the same vein, development specialist and director at the Praxis Centre, Jaye Gaskia, said allocating over N3 trillion to debt servicing will impact on government’s ability to implement capital project. According to him, the trend is not sustainable.
“What is your debt service ratio to your annual budget? You have to consider that and consistently, this has been over 30 per cent of your revenue and another 40 per cent goes into recurrent expenditure. It is not a sustainable arrangement and you cannot grow the economy that way. It is a dangerous trend!”
With crude revenue on steady fall, and allocation to capital project much lower than the amount set aside for debt servicing, President Buhari’s promise of constructing 337 rural roads across the country may just be another talk shop.