• Thursday, March 28, 2024
businessday logo

BusinessDay

2020 Budget of smoke and mirrors won’t take Nigeria to Promised Land

DFID, CIRDDOC, others call for transparency, participatory budget system

The Federal Government is eating its future lunch today, as debt service cost continues to eat deep into revenue, while a reduction in revenue target signals further budget deterioration.

The severity of obligation cannot be overemphasized, as debt service to actual revenue is currently at 54 percent, suggesting that Federal Government spent N54 out of every N100 generated in revenue on debt servicing.

A cursory examination of the chart shows debt service has spiked by 70.93 percent from N720 billion in 2014 to N2.45 trillion in 2020, but the ratio could balloon as government is in talks with the World Bank and International Monetary Fund (IMF) for an additional $3 billion loans. It intends to use the loan to finance its power project programme.

The nation’s debt stock rose to N25.7 trillion as at June 2019, according to the Debt Management Office (DMO). To further exacerbate the problem of Nigeria’s debt is the rise in debt service to revenue ratio from 27 percent in 2015 to 58 percent at the end of 2018.

The N2.45 trillion debt service costs, which is a quarter of the N10.3 trillion 2020 budget president Muhammadu Buhari presented to the National Assembly on October 8, exceeds the N2.14 trillion earmarked for capital expenditure.

Businessday MARKETS INTELLIGENCE (Team lead: Bala Augie nance and National Planing, Zainab Ahmed, admitted that low revenue is undermining FGN ability to service its debt, but the IMF had advised Nigeria to increase tax to raise more revenue.

The minister had noted that it would be impossible to meet 80 percent revenue performance by year end; however, government has never met its set target.

In 2017, the revenue target was N5.08 trillion, out of which N2.7 trillion was realised. The Federal Government’s revenue projection for 2018 was N7.16 trillion out of which only N3.96 trillion achieved. In 2019, the Federal Government’s projected revenue was put at N6.98 trillion. As of June N2.04 trillion was realized.

If revenue cannot cover interest payment and operating cost, then the country is susceptible to financial crisis, and the IMF has said there is an urgent need to increase non-oil tax so as to get funds to build infrastructure and human capital.

There was a reduction in the non-oil revenue target for 2020 to N1.8 trillion from N3.3 trillion for 2019, which is more in line with government capability seen in the past years, therefore the fiscal balance may deteriorate further in the year ahead.

Read also; Why we need to stop focusing on the recurrent versus capital portions of the budget

Nigeria’s revenue to GDP ratio is currently at 6 percent, one of the lowest among peers.

Already, there has been an aggressive drive by Federal Government as it is about to hike Value added Tax (VAT) to 7.50 percent from 5 percent, while it is about to slap excise duties on alcohol and carbonated drinks.

Over the past 7 years, Nigeria has had fiscal deficit, signalling short fall between income and expenditure, so government had been borrowing to plunge the hole.

The amount of deficit in the 2020 budget is over 2 trillion, this compares with N1.95 trillion in 2019.

The chart shows that in the last 7 years recurrent expenditure make up the large chunk of government spending, leaving a drop in ocean for capital projects in a country blighted with decrepit infrastructure.

Nigeria needs as much as $3 billion per annum over 30 years to bridge the infrastructure deficit, according to the Minister for Finance, Zaniab Ahmed.

In 2015, of the total expenditure (capital plus recurrent) of N4.59 trillion, 53.38 percent, representing N2.45 trillion, was earmarked for recurrent expenditure, while 46.67 percent was set aside for capital expenditure.

It can be seen from the chart that the highest ratio was in 2015, when over 80 percent of government spends went to recurrent expenditure.

Crude oil accounts for over 80 percent of foreign exchange earnings and two thirds of government revenue, but the economy has been growing sluggishly since the country exited a recession in the third quarter of 2017.

GDP expanded by 1.94 percent in the third quarter of 2019, but it below the growth rate of 5.75 recorded in 2014, when crude oil price was at $77.50 a barrel, and inflation rate benign.

The IMF had projected that the global economy would grow by its slowest pace since the global financial crisis of 2008, citing concerns about the trade spat between the United States and China a deteriorating global manufacturing output.

The vagaries at the international market has cast a pall over future government revenue as oil prices may not hit $100 a barrel mark even as OPEC and its members had agreed to cut output by 1.20 million barrels so as to stabilize price.

Analysts say government should sell some of its assets in order to raise money to fund its budget, and that a unified foreign exchange and benign regulatory environment would attract investment into the country.