With the planned implementation of next year’s budget from January 1, 2020, Nigerians already used to delayed budget cycle are anxious to see how far this fiscal policy will deliver the much awaited dividends of democracy in the coming year, report Ibrahim Apekhade Yusuf and Charles Okonji
President Muhammadu Buhari has blazed the trail as far as speedy passage of the budget is concerned. When an elated Buhari signed the 2020 Appropriation Bill into law last Tuesday, he finally broke the jinx of delayed budget, which has plagued the polity since the return to civil rule 20 years ago. It was the fourth time that the Federal Budget was passed before the end of the outgoing year, and the earliest.
The making of 2020 budget
Upbeat, President Buhari had recalled that he had laid the 2020 Appropriation Bill before the Joint Session of the National Assembly on 8th October, 2019 and forwarded the 2019 Finance Bill shortly thereafter.
While acknowledging that the National Assembly worked uncommonly long hours in the interest of the national economy to ensure detailed legislative review and passage of the Budget within two months, he noted that the patriotic zeal adopted by the Ninth National Assembly had restored budget cycle to a predictable January to December fiscal year.
Tagged, “Budget of Sustaining Growth and Job Creation” it was presented at the Joint Session of the National Assembly in Abuja last October. The Senate and the House of Representatives had on December 5, 2019, concurrently passed the budget, raising the total estimates from the proposed N10.33tn to about N10.6tn. The National Assembly had put a clause in the bill that the budget should run from January 1, 2020, bringing Nigeria back to a long desired January-December budget cycle.
Of the new total sum of N10,594,362,364,830, the parliament raised statutory transfers from the proposed N556.7bn to N560,470,827,235; raised debt service from N2.45tn to N2,725,498,930,000; reduced recurrent (non-debt) expenditure from N4.88tn to N4,842,974,600,640; and increased development fund for capital expenditure from N2.14tn to N2,465,418,006,955. As part of the N264bn increment, the National Assembly raised its own budget from N125bn to N128bn.
2020 budget details
While giving the budget breakdown, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said, of the total N10.59 trillion budget, about N8.42 trillion revenue is provided for, consisting of about N2.64 trillion from oil, N1.81 trillion from non-oil and N3.97 trillion from other sources.
The minister said at the presentation of the details of the 2020 budget last Thursday in Abuja that the approved legislation by the National Assembly was expected to be sent to President Muhammadu Buhari for final assent before the end of this week.
According to her, the budget also consists of deficit of N2.175 trillion. About N2.465 trillion is going for capital expenditure, N4.94 trillion for recurrent expenditure, N2.45 trillion for debt service, N273 billion for debt sinking fund, N350 billion for special intervention and N560 billion for statutory transfers.
On revenue projections for the year, the minister said while oil revenue will account for about 31.3 per cent of the total outlay, signature bonus/renewals will contribute 11.2 per cent, independent revenue sources (10.1 per cent), company income tax (CIT) 10 per cent, Customs (7.3 per cent) and domestic recoveries/fines (2.8 per cent).
She also mentioned revenue from government-owned enterprises (6.6 per cent), stamp duties (5.5 per cent) Federal Government’s share of actual balance in special accounts (4.1 per cent), Federal Government share in special levy accounts (3.5 per cent), value-added tax (VAT) (3.5 per cent), share of dividend from the Nigeria LNG (1.5 per cent) and other revenue sources (2.6 per cent).
Along with the budget proposal, a Finance Bill was presented to the National Assembly for consideration and passage into law. The draft bill proposes an increase of the VAT rate from 5% to 7.5%. The Finance Bill was passed by the Senate on November 21, 2019. It amended seven existing tax and fiscal policy laws namely the Companies Income Tax Act, 2004; Value Added Tax, 2007; Customs and Excise Tariff Consolidation Act, 2004; Personal Income Tax Act, 2007; Capital Gains Tax Act, 2007; Stamp Duties Act, 2007; and the Petroleum Profit Tax Act, 2004. The 2020 budget revenues estimate is based, in part, on the new proposed VAT rate. The sum of N8.155tn is estimated as the total Federal Government revenue in 2020 and comprises oil revenues of N2.64tn, non-oil tax revenues of N1.81tn and other revenues of N3.7tn.
On the Finance Bill, she said when it is eventually signed into law, not all the provisions of the bill would be implemented from January 1st next year.
She added that Finance Bill has about 83 modifications, adding that several of these amendments are meant to improve the business environment, especially the small and medium scale businesses.
She allayed fears being nursed with regards to implementation of Tax Identification (TIN) as requirement for all transactions, including bank account. The minister said government will engage banks on the modality for implementation.
“Until the finance bill is assented into law, the measures we have to take are just plans for now. But we are confident that within this week, Mr. President will have this bill from the National Assembly and he will normally ask various ministries to review and advise him before he signs. Our target is that we start the work on January 1, 2020. I am not saying that every provision in the Finance Bill will take effect from January.
“We have seen in the papers where people say from January 1, you can’t operate your account without TIN number. It does not work that way. That is where we have to engage the commercial banks. The FIRS will engage the commercial banks and work out a modality on how this will be implemented,” she said.
READ ALSO: Buhari signs N10.594tr 2020 Budget
Echoing similar sentiments, the Minister of State for Budget and National Planning, Prince Clem Agba, assured that government will ensure at least 70 per cent of 2020 budget implementation.
He hinged his optimism on expected high revenue rakes from recently signed deep offshore Act, implementation of Finance Bill and other sources of revenue.
In his opening remark, Director-General, Budget Office, Mr. Ben Akabueze, said government decided to launch citizen’s guide to make understanding of 2020 budget easier for Nigerians.
Borrowing for budget
The Federal Government’s plan to borrow an additional N1.92 trillion in 2020 will take Nigeria’s total public debt portfolio to about N27.62 trillion, an additional N15.5 trillion borrowed since the first swearing-in of the Muhammadu Buhari administration four years ago.
In the 2020 Appropriation Bill presented to the National Assembly last week, President Muhammadu Buhari said his government will take new loans during the year.
Last Tuesday, the Debt Management Office said in an update posted on its website that the country’s debt portfolio rose to about N25.7 trillion as of June 30 this year.
With the latest plan to borrow another N1.92 trillion in 2020, Nigeria’s debt profile would have risen by over 128 percent in five years, from N12.12 trillion on June 30, 2015 to about N27.62 trillion on June 30 this year.
When the present administration came to office, the federal government’s total domestic debt stock was about N8.4trillion, while states’ domestic debts stood at about N1.7trillion.
The external debt stock of the federal and state governments was about N2.03 trillion.
Details published in Abuja on Tuesday by the DMO showed the Federal Government’s debt as at June 30 this year climbed by about 60 percent to N13.4 trillion, while the 36 states and the Federal Capital Territory debt also rose to N3.97 billion.
Of the total debt portfolio, the federal government accounts for 79 per cent, about N20.4 trillion of the N25.7 trillion outlay. This consists of external (N7.02 trillion) and domestic (N13.97 trillion).
Also, the States and the FCT account for about N5.28 trillion, consisting of external N1.31 trillion and domestic N3.97 trillion.
Despite growing concerns by Nigerians, the government has insisted its debt-to-gross domestic product is not only one of the lowest among its peers but also within an acceptable threshold.
Data from tradingeconomics.com show Nigeria’s debt-to-GDP stands at 21.30 per cent as of December 2017.
Expectations for budget 2020
In the view of many Nigerians, having a normal financial year will assist for proper planning and execution of the annual budget just as it is hope that the country will never experience a distorted budget cycle ever again.
In opinion of Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry (LCCI), “The timely signing of the budget by President is laudable. It will impact positively on budget implementation and the timely delivery of the expected outcomes from the budget.”
Besides, he said, “It will reduce uncertainty which in the past has been experienced by the stakeholders impacted directly by the budget. Thirdly, it makes planning easier for relevant private sectors and public sector stakeholders in the budget process. It is hoped that the return to January – December budget cycle will be sustained. However, revenue constraint remains a major factor in the implementation. Revenue projections appear optimistic, given the trend of revenue performance in recent years. We should moderate revenue expectations from the finance bill.”
However, with the 2020 budget taking off from January 1 of next year, there are concerns about implementation of the fiscal and monetary Act. The first major worry is about how to fund the budget. In the years gone by, the capital component of the budget often did not record up to 50 per cent implementation due to the paucity of funds unlike the recurrent expenditure including the overheads which get drawn down 100 per cent. There is going to be over N2tn budget deficit which the executive intends to borrow to finance the budget.
Interestingly, President of the Senate, Senator Ahmed Lawan, promised that the Senate will pass the $29.96bn external borrowing plan of the Buhari regime. It is hoped that these funds, both the ones that will be earned locally and those to be borrowed from abroad, will be judiciously spent.
There are also some qualms about meeting our revenue projections from both oil and non-oil sectors. It is hoped that the price of crude oil in the international market will not fall below the benchmark of $57 per barrel estimate upon which the 2020 budget is premised. It is equally anticipated that the 2.18mbpd oil production supply will be met. If these two variables are not accomplished, it will cause dislocation and funding challenge for our budget. As it is said in economics, ceteris paribus meaning “all things being equal,’ next year’s budget should perform better than this year’s own.
Aside from funding, the 2020 budget faces the perennial challenge of lack of proper oversight of the implementation. If there is no proper Monitoring and Evaluation of the execution of this budget, the so-called “Budget of Sustaining Growth and Job Creation” will be a mere mirage. Yet, what Nigeria hopes for in 2020 is better governance leading to significant improvement in their standard of living and not the cost of living.
In their analysis of the 2020 budget, Yomi Olugbenro, Lead Partner (Nigeria), Tax and Regulatory Services along with his team members at Deloitte including: Oluseye Arowolo, Partner, Tax and Regulatory Services, Patrick Nzeh, Partner, Tax and Regulatory Services, Taiwo Okunade, Partner, Tax and Regulatory Services and Olukunle Ogunbamowo, Partner, Tax and Regulatory Services, they noted that the budget shows projected aggregate expenditure of N10.33 trillion with expected revenue of ¦ 8.155 trillion resulting in a deficit of N2.18 trillion, for the 2020 fiscal year.
The experts at Deloitte noted that the budget shows oil revenue accounting for about 32% of the projected revenue while non-oil revenue, including revenue from independent sources, accounts for about 68% of the budget. “This is commendable considering that in the approved 2019 budget, oil revenue accounted for about 53% of the total budgeted revenue. Notwithstanding the above, the general volatility associated with commodity prices portends great concerns for FGN’s aim of meeting oil revenue targets.”
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