The projected deficit embedded in the 2020 budget jumped to N5.2 trillion or 3.67 percent of GDP, as the Federal Government on Wednesday slashed its already passed budget and revenue projections in line with new economic realities.
However, the budget cut by the Federal Government to adjust fiscal plans to grimmer realities facing the country might fail to realise intended results for a country with a history of poor revenue realisation and budget utilisation, while the huge budget gap will pose a new financing headache to the FG.
The FG has in a revised copy of the 2020 budget sent to the National Assembly cut down the N10.59 trillion budget already passed by the legislature to N10.276 trillion. Copies of the revised budget, according to credible sources, were shared at a meeting between the leadership of the National Assembly and the Minister of Finance, Zainab Ahmed, and the GMD of the Nigerian National Petroleum Corporation, Mele Kyari.
The new budget indicated that there is total 20 percent cuts on the capital projects amounting to N312.820 billion.
In the N10.59 trillion national budget passed by the National Assembly in December 2019 the sum of N2.465 trillion was allocated to capital expenditure for the 2020 financial year.
The revised budget also showed that the earlier N560.4bn earmarked for statutory transfers has been reduced to N407.805 billion.
Under the new budget N150 billion has been allocated to the Covid-19 Special Intervention Fund and the money would be transferred from special accounts.
Speaking on the revised budget, the Minister of Finance, Ahmed on Monday said the 2020 Appropriation Act was based on certain fiscal assumptions, which government have been compelled to revisit, given the emerging economic realities.
“Specifically, projected oil revenues have been significantly affected in that: Dated Brent oil prices fell to as low as US$19.125/barrel (03.04.2020) as compared with the 2020 budget benchmark of US$57/barrel; and oil production in 2020 year-to-date is 1.9mbpd (before the current crises) as compared with the 2020 budget’s projection of 2.18mbpd.”
“We are therefore revising the benchmark oil price for 2020 to US$30/barrel and oil production to 1.7mbpd. We have similarly had to adjust downwards our non-oil revenue projections, including various tax and customs receipts, as well as proceeds of privatisation exercises. In this regard, the Budget Office is currently working on amendments to the medium-term expenditure framework (MTEP 2020-2022) and the 2020 Appropriation Act.
“The proposed amended budget will provide for the COVID-19 Crisis Intervention Fund and other adjustments required, due to the decline in international oil prices. We have also commenced consultations with the leadership and key Committees of the National Assembly to discuss our plans, such that once the Executive’s 2020 Amendment Budget is completed, we shall expeditiously seek presidential and legislative approvals for this revised appropriation”, she added.
However, a history of missing revenue target and not fully implementing the budget may make the move by the FG a mere exercise.
According to data from the Budget Office, as at June 2019, Federal Government’s actual aggregate revenue (excluding Government-Owned Enterprises) was N2.04 trillion, only 58 percent of the 2019 Budget’s target due to the underperformance of both oil and non-oil revenue sources.
Specifically, oil revenues were below target by 49 percent as at June 2019 which saw capital expenditure spending suffer.
In 2018, the aggregate revenue receipt for the period was N3.684 trillion or 51.42 percent lower than the annual projection.
According to the Budget Office, total inflow for funding the FGN 2018 budget stood at N3.869 trillion indicating a shortfall of N3.27 trillion or 46.04 percent below the annual estimate for the period.
While actual expenditure in 2018 stood at N7.59 trillion, indicating a decrease of N1.65 trillion or 17.64 percent below the annual projection.
Also, a budget deficit which stands at roughly 50 percent of Nigeria’s newly downward revised N10.276 trillion budget will pose a new challenge to cash-strapped FG now faced with limited options for raising capital to plug holes in its spending plan.
The deficit of around N5.2trn is the difference between the N10.276 spending plan and projected revenue of N5.086trn made in the light of bleaker revenue prospects for the oil dependent country.
This poses a huge challenge for the government in terms of financing given the collapse of global bonds market.
The FG in the aftermath of the COVID-19 pandemic outbreak shelved its $3.3bn Eurobonds plans meant to cover for gaps in the initial 2020 approved budget.
Now, plans are to seek non-commercial loans from the IMF and World Banks, among other institutions to the tune of $6.9 billion to meet its many competing needs.
ONYINYE NWACHUKWU (Abuja) & SEGUN ADAMS (Lagos)
