• Wednesday, May 22, 2024
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Finance minister says debt service to gulp 29% of total revenue in 2020

Finance Minister-Zainab Ahmed

The Federal Government will spend almost a third of its projected revenue to service Nigeria’s debt next year, Zainab Ahmed, minister of finance, budget and national planning, said on Thursday.

Ahmed said N2.452trn or 29 percent out of N8.42trn that government has set as its revenue target in 2020 would be used to service debt. This would also amount to about 23.2 percent of total expenditure, an amount which is an increase of 14.5 percent from 2019.

This is coming amid concerns about the country’s rising debt burden.

Nigeria struggles to meet its annual revenue target and spends more than half of what the government earns paying the interest on its debt. This has drawn public criticism, including a recent backlash from former Vice President Atiku Abubukar.

Total public debt has risen by almost 58 percent in the last three years to N25.7trn as of June 2019. Last year, the government paid N1.8 trillion to service its local debt and $1.47bn or around half a trillion naira for external debts.

While as a percentage of GDP, debt remains under 25 percent, the poor utilisation of borrowings and the fact that servicing debt is now as high as the amount earmarked for capital projects has been of major concern, especially for a government which barely generates enough revenue.

To put it in context, allocation to capital projects (CAPEX) in the 2020 budget is N2.78trn or 26.2 percent of total expenditure and would be 12.6 percent less than 2019.

There will also be a provision to retire maturing bonds to local contractors of N272.9bn which is 2.6 percent of total expenditure, and 148 percent higher than 2019. According to Ahmed, this reflects FGN’s effort to resolve accumulated arrears of contractual obligations dating back over 10 years.

Meanwhile, the overall budget deficit of N2.175trn jumped from the N859bn in 2019. The figure represents 1.52 percent of the gross domestic product.

Ahmed said that the projected deficit is still within the threshold stipulated in the Fiscal Responsibility Act 2007, while economists expect the deficit to be wider than expected based on historic trends.

The minister explained that the deficit would be funded by N850bn new foreign borrowing, N744.99bn new domestic borrowing, N328bn multilateral/bilateral loan agreement, and N252bn privatisation proceeds.

The budget assumes an exchange rate of N305/$, oil production at 2.18 mbpd, oil price at $57/b, inflation rate at 10.81percent, nominal GDP at 142.96trn, GDP growth at 2.93 percent, and nominal consumption at N122.75trn.

The oil production volume projected is lower than the projected volume of 2.3 mbpd in 2019.

The minister explained that the actual crude oil production and exports have been below budget projections since 2013 despite installed capacity of up to 2.5 mbpd, hence the 2020 projection of 2.3 mbpd, which she said was more realistic to achieve.

A breakdown of the budget shows a total revenue of N8.42trn, to be generated through N1.81trn non-oil revenue, N2.64trn oil revenue, and N3.97trn from other revenue sources.

Total expenditure is valued at N10.594trn, broken down into capital expenditure at N2.465trn, recurrent expenditure at N4.493trn, debt service at N2.453trn, Statutory transfer at N560bn, debt sinking fund at N274bn.

“The top 12 MDAs recurrent expenditure include Ministry of Interior at N219.46bn, Ministry of Police Affairs at N394.57bn, Federal Ministry of Defence at N784.59bn, Federal Ministry of Education at N501.48bn, Federal Ministry of Youth and Sport at N168.33bn,” Ahmed said.

“Others include Ministry of Foreign Affairs at N67.81bn, Ministry of Petroleum Resources at N75.96bn, Office of the National Security Adviser at N116.91bn, Ministry of Agriculture and Rural Development at N58.69bn, Office of the Secretary to the Government of the Federation at N 59.60bn, and Presidency at N46.56bn,” she said.

The minister further explained that the initiatives to drive strategic revenue growth include to identify new and enhance existing revenue streams, and build a sustainable revenue generation ecosystem by ensuring resilient and optimal performing revenue stream.

“We will implement the revenue generation operating model that enhances collaboration, synergy, capacity building and eliminate leakages,” Ahmed said.

Clem Agba, minister of state for finance, budget and national planning, said that capital expenditure would be targeted at completion of on-going projects rather than commencing new ones, adding that there is a projection for an increased share of non-oil revenues which underscores confidence in the various revenue diversification strategies.

“In our efforts to enhance transparency and accountability, we shall extend strict implementation of Treasury Single Account to capture the domiciliary accounts in our foreign missions as well as some accounts of government-owned enterprises,” he said.

“The 2020 budget expects enhanced real GDP growth of 2.93 percent to be driven largely by non-oil output as economic diversification accelerates and the enabling business environment improves,” he said.

Ben Akabueze, director general, Budget Office of the Federation, said the 2020 budget aims to consolidate the achievements of the Economic Recovery and Growth Plan of the government, with key focus on ramping up the nation’s infrastructure stock, sustaining economic growth and maintaining macroeconomic stability.

“Although the 2020 capital expenditure falls short of 30 percent ERGP target, the main emphasis will be the completion of as many on-going projects as possible. It is expected that given the early passage of the budget, actual disbursement may exceed the outcomes under larger budgets in past years,” he said.