The President as was projected presented the 2021 Budget of Economic Recovery and Resilience to a joint session of the National Assembly on Thursday October 08, 2020. We must applaud as well as commend the timing of this presentation as it lays the foundation for the much desired January to December Budget fiscal year. We were also similarly able to discharge this feat last year after a long spell of inability to do so and there were great expectations about the impact of that development on our record of Budget performance particularly capital budget implementation. It would be recalled that in the recent past when the Budget was routinely approved after the second half of the year that the record of performance of Budget implementation was abysmal. We reaped the benefits of this development as was reported by the President in the text of his Budget presentation; in spite of the impact of the pandemic, we were for the first time in recent memory able to commence the implementation of the Capital Budget from the first quarter of the fiscal year with a whopping aggregate expenditure amounting to 1.2 trillion Naira as at September 15, 2020 with all Ministries, Departments and Agencies attaining at least 50% of their Capital Expenditures. Capital Expenditure accounts for the growth and development in any economy. We are therefore most certainly on course for record Budget implementation.
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We must also point out that there is still some slack to cover with regard to the timing of the presentation of the National Budget to the National Assembly if we wish to guarantee that we keep fidelity to the preferred Budget year of January to December. The Fiscal Responsibility Act gives a date of end of August for the Budget to be laid before the National Assembly. But we remain confident that this goal will be achieved as it has been reported that the Budget implementation was collaborative between the Executive and the Legislature. The expectation therefore is that the review and approval would be seamless mindful of the fact that the President had also instructed that all heads of government should be on standby and on the ready for Budget defense before the National Assembly committees. While we are at this it is also in order to observe that the Medium-term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) were approved just the day before the Budget presentation and we were duly informed as should be expected that all the assumptions in the Budget were embedded in the MTEF. But the closeness of the approval of the MTEF and FSP to the presentation of the Budget is problematic. Ordinarily the Budget preparation should have followed well after these approvals were received to give credence to the fact that we observed due procedures in the Budget preparation.
Budget 2021 has aggregate expenditure of an amount the equivalent of 13.08 trillion Naira up from the initial estimate of 10.523 trillion Naira for Budget 2020 before the revisions which were undertaken consequent upon the onset of the pandemic. This Budget size was based on the assumption of oil price of 40 dollars per barrel with volume sales of 1.86 million barrels per day projected. We hope that this assumption of volume per day lifting is aligned with the Organization of Petroleum Exporting Countries (OPEC) quota for us because as a leading member of OPEC we should lead from the front with good example of compliance for others to follow.
We must however empathize as we undertake this discussion to appreciate the dilemma of those charged with the responsibility of the preparation of the Budget at this particular point in time. Sometimes we permit wishful thinking as the matter in hand is rather problematic to handle otherwise. We have encountered comments to the effect that the assumed benchmark price is ambitious, that it is better to err on the side of caution. What must be cold comfort for us is that we survived the worst ever drop in the price of oil in 2020 and we were none the worse for it.
An inflation rate of 11.95% has been assumed as well as an exchange rate of 379 Naira to the dollar. The Central Bank we would all appreciate has to walk the tight rope of managing the psychology of the market as well as the pressure from the multilateral financial institutions for a harmonization of the exchange rates in the economy. But the projections which I consider really off in spite of the apparent agreement with the World Bank from where I stand is that of growing the economy by 3 per cent in 2021! How is that possible as I stand to be pleasantly surprised? The economy contracted by 6.1 per cent in the second quarter of this year and it does not take much to predict that we are very likely to end the year with the economic growth in the negative territory. It would therefore take some doing for us to attain a growth of 3 per cent in 2021. It is also in order to observe that even if we did so we might not even be seeing much development with that level of growth considering the fact that the population growth in the country averages 3 per cent per annum.
A deficit of 5.20 trillion Naira has been estimated representing 3.64% of GDP contrary to the threshold of 3 per cent included in the Fiscal Responsibility Act. As the President observed during his presentation, we have to accommodate this breach considering the pandemic environment we find ourselves in with the need to offer palliatives and various forms of incentives to enable businesses get back on their feet. One of the pleasant surprises we found with the implementation of Budget 2020 is the fact that it was reported that we were up to date with our debt servicing obligations including statutory transfers, the payment of staff salaries while overheads were significantly covered despite the outcry regarding debt sustainability. A total amount of borrowing of 4.28 trillion Naira has been projected for 2021 with the debt service obligation estimated at 3.124 trillion Naira.
We commend the government for not making budgetary allocations for the payment of subsidy on petroleum products in the Budget making definitive statement about its resolve on the matter and for the initiatives regarding aggressive mobilization of resources to help bridge the fiscal gap. As it remains a fact that for most progressive economies that recurrent expenditure is covered from proceeds from sundry taxation. We note and support the innovative stance of giving revenue targets to Government owned enterprises, Ministries, Departments and Agencies to help balance the prevalent mindset in budgeting which is overly focused on expenditure. Also, the resolve to provide additional safety nets to cushion the negative impacts of the reforms and to make provisions for domestic legacy debts which often accounted for the bad debts in the books of banks. And the requirement that recipients of statutory transfers are to make quarterly reports to be included in quarterly reports on Budget implementation is salutary as it aids accountability.
We note the approval for the establishment of infrastructural company as promoted by the Central Bank to help bridge the yawning infrastructural gap in the country. But it is difficult to believe the report that government has established fifty new additional agencies in an era when we bemoan the skewed structure of the budget in favour of recurrent expenditure crowding out in the process growth inducing Capital Expenditure. We just celebrated as reported that Capital expenditure in the 2021 Budget at 39% is wee bit shy of the desired target of 40 per cent. We note with satisfaction the aggressive expansion of rail network across the length and breadth of this country and find particularly cheering the news that the Itakpe Ajaokuta rail line which has been moribund for thirty years now has received a breath of life. We look forward to the budget details to be subsequently presented by the Honorable Minister of Finance for as the saying goes; ‘’The enemy is in the details.’’
But it is difficult to believe the report that government has established fifty new additional agencies in an era when we bemoan the skewed structure of the budget in favour of recurrent expenditure crowding out in the process growth inducing Capital Expenditure ‘
