Nigeria’s President Muhammadu Buhari on Tuesday presented a N10.33 trillion 2020 Appropriation Bill to the National Assembly, with an ambitious revenue target aimed at funding it.
The draft proposal pegs the Federal Government revenue target at an all-time high of N8.155 trillion, 7 percent higher than the N7.594 trillion the government planned to generate in the 2019 budget.
Africa’s largest economy has over time been confronted with ballooning budget deficit owing to revenue shortfalls.
According to the draft proposal, the Federal Government plans to generate N2.64 trillion as oil revenue, N1.81 trillion from non-oil, and N3.7 trillion from other revenue sources.
Analysts say this calls for concern as Nigeria has for years failed to meet the revenue target projected in the budget and, in fact, the variance between the budgeted and actual revenues has widened within the past five years, forcing the government to resort to huge borrowings to meet its planned expenditure.
For example, as of June this year, the Federal Government had only generated N2.043 as revenue from both oil and non-oil sources, despite a N6.998 trillion target for full year. And even though it said it would generate N1.859 trillion from the sale of assets and joint ventures, Nigeria as at June this year had not generated a dime from other sources, meaning it ignored its proposition in the budget.
Though the 2020 budget proposes a lower oil revenue target as opposed to other years where it projected the larger chunk of its revenue to come from the oil sector, analysts, however, worry that without strict reforms in the economy, the government would still be faced with the challenge of generating the needed revenue from the non-oil sector.
“It is commendable that the government has taken a bold step to increase the share of government non-oil revenue and other revenue as against oil revenue, but the concern is how much of the non-oil revenue target will be realised as this has been the trend historically,” said Gbolahan Ologunro, an equity research analyst at CSL Stockbrokers Limited.
To boost revenue in the non-oil space, Nigeria pegged the proposed budget on a 50 percent increase in Value Added Tax (VAT), a tax imposed on additional services at each stages of production, from 5 percent to 7.5 percent
The additional revenues from the VAT increase are expected to be used to fund health, education and infrastructure programmes, with 85 percent of the revenue allocated to the states and local governments.
In order to send a relief to the Small and Medium-scale and Enterprises (SMEs), the VAT increase excluded basic commodities and also raised the threshold for VAT registration to N25 million in turnover per annum, according to the proposed budget.
“I don’t think we are likely going to see any improvement even with the new increase in VAT since the gains from the tax revenues will be offset with the new N30,000 minimum wage implementation; hence, we will be back to status quo in terms of increased deficit and high level of borrowings,” Ologunro said on phone.
Emeka Ucheaga, CEO, EAU Intelligence, thinks the revenue target “is ambitious and non-realistic”.
“Actual revenue in 2018 was N3.9 trillion at crude oil price averaging $71 per barrel and saying we will increase revenue to N8.15 trillion is a joke,” Ucheaga said.
“Without good fiscal policies towards increasing the tax net and improving the efficiency of our tax collection, then this budget is a mirage,” he said.
The shortfall between actual revenue receipt by the Federal Government and projected revenue worsened when a global collapse in oil prices that happened in 2014 and an agitation by militant groups in the Niger Delta sent oil production to as low as 1.2 million barrels. This culminated in pushing the oil-dependent nation to its first recession since 28 years.
Prior to 2014, Nigeria’s miss in revenue target – that is, the variance between actual and budgeted Federal Government retained revenues – was in the billion-naira range but with the collapse in oil prices, the difference has stayed within the trillion-naira range. This is despite oil prices and production levels increasing to what they were pre-recession level.
In 2014, the Federal Government’s actual retained revenues stood at N3.727 trillion, based on data obtained from the CBN’s quarterly reports. This value represented a shortfall of N3.5 billion from the N3.731 trillion projected in the 2014 budget.
In 2015, when the country started feeling the gentle heat from the fall in crude oil prices, variation between actual and projected revenue ballooned 19.58 percent to about N675.89 billion. In that year, Nigeria realised N2.776 trillion even though it stipulated a revenue generation of N3.452 trillion.
The gap, however, widened further at the thick of the economic recession that forced Africa’s biggest oil producer to look to the non-oil sector as the messiah that would lift the economy from its precarious state. For the first time in many years, the non-oil sector raked in the highest amount of revenue for the government while the oil sector played a second fiddle.
Of the total N2.621 derived as revenue in 2016, non-oil revenue was N824.22 billion while retained revenue from oil stood at N697.80. However, even an increase in non-oil revenue could not narrow the shortfall between actual and budgeted revenues. Variations between budgeted and actual in 2016 ballooned some 32 percent to N1.234 trillion.
The same trend followed in 2017 and 2018 when variations between actual and budgeted stood at N2.426 and N3.2 trillion, respectively.
For 2018, the Federal Government could only manage to hit revenue of N3.96 trillion, a far cry from the N7.16 trillion apportioned in the budget.
However, the dwindling revenues have not stopped Nigeria from increasing its recurrent expenditure which has more than tripled.
The Federal Government pegged the 2020 budget deficit at an estimated N2.18 trillion, 2.3 percent above 2019 levels of N2.13 trillion. Also, it represents 1.52 percent of estimated GDP, below a 3 percent threshold set by the Fiscal Responsibility Act of 2007, and in line with the ERGP target of 1.96 percent.
The deficit is expected to be financed by new foreign and domestic borrowings, privatisation proceeds, signature bonuses and drawdowns on the loans secured for specific development projects.
MICHAEL ANI, DAVID IBIDAPO, Lagos, SOLOMON AYADO & JAMES KWEN, Abuja
