BusinessDay

Unveiling Nigeria’s 2021 budget

… Buhari expresses concern over poor revenue generation ...Defence gets N840.56bn, largest for recurrent spending … Education gets N127bn for capital expenditure

President Muhammadu Buhari on Thursday expressed serious concerns over government poor revenue generation and directed that incomes of Government Owned Enterprises (GOEs) be scrutinised henceforth and limits imposed on their cost-to-revenue ratios.

Buhari, speaking at the presentation of the 2021 Appropriation Bill to a joint session of the National Assembly in Abuja, urged the lawmakers to pay close attention to the revenue side as they would do to the expenditure side.

The N13.08 trillion 2020 budget tagged “Budget of economic recovery and resilience” coming at a time of a looming economic recession, is predicated on a $40 per barrel oil price benchmark and daily oil production estimate of 1.86 million barrels.

Exchange rate is estimated at N379/$, and Gross Domestic Product (GDP) growth projected at 3 percent, with inflation projected at 11.95 percent.

In his 16-page budget speech, the President said revenue generation remained the country’s major challenge as he had directed government agencies “to ensure that they obtain all necessary approvals before embarking on any fresh recruitment.

“Any breach of these directives will be severely sanctioned,” he said.

As at July, Federal Government’s actual revenue available for the budget was N2.10 trillion, about 68 percent of the pro-rated target in the revised 2020 budget.

At N992.45 billion, oil revenue performed well above budget target, by 168 percent. However, Non-oil tax revenues totalled N692.83 billion, which was 73 percent of the revised target.

READ ALSO: Indorama-Nigeria to invest $6bn more after $3bn so far – Minister

To improve independent revenue performance, the President also directed that the cost profiles of GOEs be scrutinised and limits imposed on their cost-to-revenue ratios.

“Supervising Ministers have also been directed to ensure closer monitoring of the revenue-generating activities and expenditures of the Government Owned Enterprises,” he directed.

According to the President, “government is determined to tackle the persisting problems with domestic resource mobilisation, as there is a limit to deficit financing through borrowing and that the time has come for us to maintain a healthy balance between meeting our growing expenditure commitments and our long-term public financial health.”

He raised the concerns that Personnel cost remained the country’s largest single item of expenditure, noting, “In the seven months to 31st July 2020, it accounted for 34 percent of total Federal Government spending and is projected at 33 percent of 2021 expenditure.

“Personnel cost is still our largest single item of expenditure. In the seven months to 31st July 2020, it accounted for 34 percent of total Federal Government spending and is projected at 33 percent of 2021 expenditure.”

To check the incidence of payments to non-existent personnel and unauthorised allowances, he declared that only federal staff that have been captured on the Integrated Personnel Payroll Information System (IPPIS) platform would receive salaries.

“All agencies have been directed to ensure that they obtain all necessary approvals before embarking on any fresh recruitment. Any breach of these directives will be severely sanctioned.”

The President revealed that overhead costs of Ministries Department Agencies (MDAs) and GOEs were projected to rise to N625.50 billion in 2021, mainly due to the inclusion of the overheads of an additional 50 Government-Owned Enterprises.

Consequently, he barred all government agencies from embarking on fresh recruitments, warning to sanction heads of agencies that breached the order.

The President’s concerns are coming amid fears of an imminent recession, and according to him, GDP growth is projected to be negative in the third quarter of this year, and as such, “the economy may lapse into the second recession in four years, with significant adverse consequences.”

Real GDP growth, which declined by 6.1 percent in the second quarter of 2020, ending the 3-year trend of positive, but modest, the growth recorded since the second quarter of 2017.

Though he admitted that Nigerian economy was currently facing serious challenges, with the macroeconomic environment being significantly disrupted by the coronavirus pandemic, he, however, assured that government working assiduously to ensure rapid recovery in 2021, and remained committed to implementing programmes to lift 100 million Nigerians out of poverty over the next 10 years.

As part of efforts to enhance national security and human capital development, the government has allocated a major part of the 2021 recurrent cost estimate to paying salaries and overheads in MDAs providing these critical public services.

These include: N227.02 billion for the Ministry of Interior; N441.39 billion for the Ministry of Police Affairs; N545.10 billion for Ministry of Education; N840.56 billion for Ministry of Defence; and N380.21 billion for Ministry of Health.

Additional highlights of the budget showed that of the N484.49 billion provided for Statutory Transfers in the 2021 Budget, National Assembly got N128.00 billion; the Niger Delta Development Commission is allocated N63.51 billion; North East Development Commission gets N29.70 billion, and National Judicial Council has N110.00 billion.

Also, under the Statutory Transfers, Universal Basic Education Commission is given, N70.05 billion; Independent National Electoral Commission – N40.00 billion; Public Complaints Commission – N5.20 billion; Human Rights Commission – N3.00 billion; and Basic Health Care Provision Fund – N35.03 billion.

The sums of N227.02 billion are allocated to the Ministry of Interior; N441.39 billion for the Ministry of Police Affairs; N545.10 billion for Ministry of Education; N840.56 billion for Ministry of Defence, and N380.21 billion for Ministry of Health in the 2021 recurrent cost estimate for payment of salaries and overheads in MDAs providing these critical public services.

An aggregate sum of N3.85 trillion was allocated for capital projects in 2021 budget with N1.80 trillion for MDAs’ capital expenditure; N745 billion for Capital Supplementation; N355 billion for Grants and Aid-funded projects and N20 billion for the Family Homes Fund.

The capital expenditure also includes N25 billion for the Nigeria Youth Investment Fund; N336 billion for 60 Government-Owned Enterprises; N247 billion for capital component of Statutory Transfers; and N710 billion for projects funded by Multi-lateral and Bi-lateral loans.

The 2021 capital budget is, however, N1.15 trillion higher than the 2020 provision of N2.69 trillion which is at 29 percent of aggregate expenditure, hence moving closer to the present Administration’s policy target of 30 percent.

Further breakdown of the capital expenditure in 2021 showed that Power is allocated, N198 billion (inclusive of N150 billion for the Power Sector Recovery Plan); Works and Housing: N404 billion; Transportation: N256 billion; Defence: N121 billion; and Agriculture and Rural Development: N110 billion.

Also, Water Resources is allocated N153 billion; Industry, Trade and Investment: N51 billion; Education: N127 billion; Universal Basic Education Commission: N70 billion; Health: N132 billion; Zonal Intervention Projects: N100 billion; and Niger Delta Development Commission: N64 billion under the capital projects budget.

Totally, the government proposed a capital expenditure of N127 billion and recurrent expenditure of N545.10 billion for the Ministry of Education in the 2021 appropriation bill, with N70 billion for the Universal Basic Education Commission (UBEC).

The N127 billion for capital expenditure is higher than the N48 billion in 2020 and N47.2 billion in 2019 for this pivotal sector.

According to the budget speech, there was however a reduction in the allocation for UBEC for 2021 when compared with N112 billion budgeted in 2020. In the 2019 budget, N113.9 billion was allocated to UBEC. In 2018, the budget was N109.06 billion and N95 billion in 2017.

The finding indicates that the Federal Government budgeted N398 billion for education in 2017. In 2018, the president initially proposed N496.9 billion, but it was raised to about N605.8 billion by the National Assembly. Incidentally, the budget was later cut as part of the virement for the Independent National Electoral Commission to prepare for 2019 February’s polls.

The president also disclosed that he had directed the Minister of Finance, Budget and National Planning to finalise the Finance Bill 2020, which will be forwarded for consideration and passage into law by the National Assembly.

The Finance Bill is to support the realization of the 2021 revenue projections, adopt appropriate counter-cyclical fiscal policies and enhance the efficiency of fiscal incentives.

Based on the fiscal assumptions and parameters, total federally distributable revenue is estimated at N8.433 trillion in 2021.

Total revenue available to fund the 2021 Federal Budget is estimated at N7.886 trillion. This includes Grants and Aid of N354.85 billion as well as the revenues of 60 Government-Owned Enterprises.

Oil revenue is projected at N2.01 trillion. Non-oil revenue is estimated at N1.49 trillion.

The president noted that the format of the 2021 Appropriation Bill has been modified to include budgeted revenues, no matter how small, for each MDA, to focus on internal revenue generation.

“Accordingly, I implore you to pay as much attention to the revenue side as you do to the expenditure side,” he urged the lawmakers.

Out of the proposed N13.08 trillion expenditure, non-debt recurrent costs is allocated N5.65 trillion; personnel Costs of N3.76 trillion; Pensions, Gratuities and Retirees’ Benefits of N501.19 billion; Overheads of N625.50 billion; Debt Service of N3.124 trillion; Statutory Transfers of N484.49 billion; and Sinking Fund of N220 billion has been created to retire certain maturing bonds.

According to the Appropriation Bill, the 2021 Budget deficit (inclusive of Government-Owned Enterprises and project-tied loans), is projected at N5.20 trillion representing 3.64 percent of estimated GDP, slightly above the 3 percent threshold set by the Fiscal Responsibility Act, 2007.

The deficit is to be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.

Buhari said Nigeria was committed to service its debt obligations with an increase of N445.57 billion over N2.68 trillion in 2020.

“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion 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.”

The President urged the lawmakers to pass the budget early enough to enable implementation by January 1, given the collaborative manner in which the budget was prepared.

In compliance with the Fiscal Responsibility Act of 2007, the president announced that government will prepare and publish, a Tax Expenditures Statement for 2019.

The 2019 Statement which will be the first of these annual Statements, setting out the estimated cost of tax exemptions, incentives and rebates provided under Nigeria’s revenue and other laws, is expected to contribute to public discussion on the use of our tax policies and system to achieve socio-economic development.

Also, all beneficiaries of Statutory Transfers will now be required to provide the Budget Office of the Federation with periodic reports on the allocation and expenditure of funds for inclusion in the quarterly Budget Implementation Report.

He said Nigeria was committed to service its debt obligations with an increase of N445.57 billion over N2.68 trillion in 2020.

“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion 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.”

To bridge the infrastructure deficit, the government is also implementing innovative financing strategies to pull in private sector investment.

“The Infrastructure Company, which I recently approved, will become a world-class infrastructure development vehicle, wholly focused on making critical infrastructural investments in Nigeria.

“This Infrastructure Company will raise funding from the Central Bank of Nigeria, the Nigeria Sovereign Investment Authority, the Africa Finance Corporation, pension funds as well as local and foreign private sector development financiers,” Buhari announced.

Meanwhile, the Senate President, Ahmed Lawan, who presided over the session asked the Executive to implement the Economic Sustainability Plan approved by the National Assembly so as to strengthen the economy in view of the resultant impact occasioned by Covid-19 pandemic.

In his welcome address, Lawan said there was the urgent need by the government to sustain programmes aimed at economic diversification, not only because of the unpredictable nature of oil revenue but due to recent uncertainties arising from the coronavirus.

READ ALSO: Autogas: FG to make conversion, installation cheaper for Nigerians

He added that sufficient injection of funds into such programmes would give a boost to the nation’s economy.

Lawan said, “All efforts should be made to implement the plan, as a number of schemes are designed to keep our Micro Small and Medium Enterprises (MSMEs) afloat.

The Senate President while pledging the National Assembly’s readiness to pass the 2021 budget before the end of the year, said doing so would continue to enable planning and enhance productivity and efficiency in the management and application of our resources.”

Lawan blamed the government’s low revenue profile on leakages on the inefficiency of revenue-generating agencies.

“Our revenue generation, collection and remittances need to be critically examined. Recent interactions between our Committees on Finance and National Planning and Economic Matters, with over 200 revenue-generating and collection agencies have revealed so many inefficiencies in their systems,” he added.

Speaker of the House, Femi Gbajabiamila assured House of Representatives will suspend plenary in a couple of weeks to give more time to members of the various Committees to invite Ministries, Departments and Agencies (MDAS) for the defence of the 2021 budget.

This is just as the House assured that the National Assembly would give thorough and speedy consideration to the 2021 budget estimates presented by President Muhammadu Buhari.

Gbajabiamila said the promise that members of the 9th Assembly made to return the country’s annual budget to the January to December cycle, which they achieved last year, remains unchanged, hence the resolve to ensure a thorough job on the budget at hand.

However, the president also assured that social safety nets would be implemented to cushion the effect of reforms on the most vulnerable of citizens and business owners.

The president said social safety nets will be implemented to cushion the effect of reforms on the most vulnerable of citizens and business owners.

He said N420 billion had been provided to sustain the Social Investment Programme (SIP), N20 billion set aside for the Family Homes Fund under Social Housing Programme.

He said the National Social Register had been expanded to include an additional 1,000,000 Nigerians following the onset of Coronavirus with the recently introduced N75 billion Survival Fund Programme to support and protect businesses from potential vulnerabilities.

He added, “Furthermore, the Central Bank of Nigeria is reducing the interest rate on its intervention facilities from 9% to 5% with a 1-year moratorium till 31st March 2021, to provide concessional lending of N100 billion to households and small businesses; N100 billion to the healthcare and pharmaceutical industry; and c. N1 trillion to large agricultural and manufacturing businesses.

“We urge Nigerian businesses and individuals to make the most of these concessional credit facilities and other such opportunities.”

Get real time updates directly on you device, subscribe now.