A breakdown of the N7.298 trillion ‘Budget of Recovery and Growth’ proposal by Budget & National Planning Minister Udoma Udo Udoma in Abuja yesterday.
Background & context
AS you are aware, the 2016 Budget was presented to the National Assembly by Mr. President on 22nd December, 2015. The budget was however not signed into law until May 6, 2016; effectively therefore, the 2016 Budget has only been operated for about seven months. Nevertheless, as will be evident from the review of this year’s budget performance that I will get to shortly, we have made reasonable progress on its implementation.
The 2017 Budget was presented to the National Assembly by His Excellency, Mr. President on 14th December, 2016. The budget reflects our commitment to restore the economy to the path of sustainable and inclusive growth. Efforts have been made to ensure that the budget aligns with Nigerian’s Economic Recovery and Growth Plan (NERGP).
My profound appreciation goes to President Muhammadu Buhari and Vice President Yemi Osinbajo under whose leadership the 2017 Budget was prepared. I also wish to thank my cabinet colleagues for their understanding, especially as we all had to work within very tight schedules in the preparation of this budget.
Review of 2016 Budget
performance
The 2016 Budget, christened the Budget of Change was the first full year budget of the Buhari administration. It was prepared against the background of general slowdown in global economic growth and massive decline in crude oil prices. It was based on the Zero Base Budgeting (ZBB) principle which requires that Ministries, Departments and Agencies (MDAs) justify every item of revenue and expense, as well as projects/programmes in the budget, a departure from the traditional incremental budgeting approach that simply adjusts (usually upwards) amounts included in the previous budget. The 2016 Budget was predicated on certain key parameters, including:
(i) Benchmark oil price -US$38/b
(ii) Oil production 2.2mbpd
(iii) Exchange rate N197/USD
(iv) Deficit (Fiscal Deficit to GDP ratio) – N2.20 trillion (2.14 per cent of GDP)
(v) Inflation N9.81per cent
(vi) GDP Growth Rate 4.3 per cent
Performance against set target
With respect to the set targets, the performance as at Q3 is as follows:
2016 Budget
Performance against Set Targets
S/No Description (FY 2016 Budget) Q3 Target Actual (as at Q3 2016)
1 Real GDP Growth (%, YoY) 4.37 -1.55
2. Oil Production (mbpd) 2.2 3. Oil Price ($pb) 38 42.09
4. Inflation Rate (%) 9.81 17.85
5. Exchange Rate (N/$) 197 305
6. Revenue (N’trillion) 3.86 2.89 2.17 (75%)
7. Expenditure (N’trillion) out of which;(a) Capital Expenditure N’trillion) 6.061.77 4.551.33 3.58 (79%)0.75.6*(56%)
8 Fiscal Deficit/GDP (%) -2.14 -1.44
•Capital spending as at end of October 2016 was N753.6 billion
Oil revenue performance
The oil revenues decreased sharply in 2015 and 2016 because of oil production shut-ins and sharp decline in oil price since 2014. The oil price steadied at an average of $110 per barrel from 2012 to 2014, but dropped to a record low of $29 per barrel in February 2016, a drop of 70 per cent. Although for most part of the year, crude oil prices exceeded the 2016 benchmark price of $38 per barrel, there has been a significant shortfall in projected revenue caused by the disruptions in crude oil production as a result of militant activity in the Niger Delta.
Revenue performance as at Q3
The federal revenues have been low because of the sharp decline in oil-production. In particular, the revenue target for January to September 2016 was N2.8 trillion as against the sum of N2.2 trillion realised during the period. The projected independent revenue was N1.1 trillion as against N0.2 trillion realised during the period. The projected revenue for Custom was N0.3 trillion as against N0.2 trillion realised, while the projected non-oil tax receipts for the 1st – Q3 of 2016 is N0.8 trillion as against N0.5 trillion realised during the period.
Background to the
2017 Budget
Global economic activities remained sluggish in 2016. In particular, Global GDP growth rate is projected at 3.1 per cent for this year from 3.2 per cent in 2015. Due to:
(i) Lower-than-expected economic activity in the U.S
(ii) Uncertain economic, political and institutional implications of BREXIT
(iii) Slowdown in China’s growth
(iv) Weak demand in advanced economies and its spill-over effects
(v) Geopolitical tensions in several countries
In spite of the foregoing developments, the global outlook remains bright. In this regard, global GDP growth rate is expected to rise to 3.4 per cent in 2017.
The domestic
environment in 2016
The challenges in the domestic environment include:
(i) Crude oil production shut-ins resulting from vandalism of oil facilities. In particular, four strategic oil fields affected including, Trans-Niger Pipeline and Nembe Creek Trunkline axis as well as the Qua-Iboe Terminal
(ii) Insurgency in parts of the North East
(iii) Fuel shortages and increase in electricity tariffs, kerosene and PMS prices in the first half of the year
(iv) Foreign Exchange (FX) scarcity.
The foregoing factors have constrained fiscal operations, real sector activities, and the external accounts. Other challenges in the domestic economy included:
(i) Contraction in growth (-2.24 per cent in Q3)
(ii) High unemployment rate (13.9 per Higher inflation rate (18.5 per cent as at November 2016)
(iv) Pressures on foreign reserves ($25.04 billion as at 14th December)
(v) Slowdown in corporate sector resulting in lower credit quality and rising non-performing loans.
The Nigerian Economic
Recovery & Growth
Plan (NERGP)
A Medium Term Economic Recovery and Growth Plan (ERGP 2017 – 2020) is being finalised which addresses the current economic challenges and is aimed at restoring growth. The Plan builds on the existing Strategic Implementation Plan (SIP) and contains strategic objectives and enablers required to revive the economy. The strategic objectives of the NERGP are: (i) Pulling the economy out of recession; (ii) Investing in our people (iii) Laying the foundation of diversified, inclusive and sustainable growth.
The NERGP focuses on five broad areas namely:
(i) Macroeconomic Stability
(ii) Competitiveness
(iii) Growth and Diversification
(iv) Social Inclusion
(v) Governance & Enablers
The 2017 Budget proposal reflects many of the reforms and initiatives in the SIP and NERGP and in the 2017-2019 Medium Term Sector Strategies (MTSS), as well as the 2017-2019 Medium Term Fiscal Framework. A Multi-criteria analysis (MCA) approach was adopted to prioritize and select 2017 capital projects for 14 large capital spending MDAs involved in the MTSS. Projects were linked to government policies and strategic priorities. MDAs that were not involved in the MTSS process used the Rapid Appraisal Project Identification and Prioritisation System (RAPIPS). Zero-Base Budget (ZBB) principles were used in preparing the Budget. ZBB ensured that expenditures in the 2017 Budget are linked to government’s strategic reforms and initiatives for economic recovery.
Approach to the 2017 Budget
The 2017 Budget is designed to expand partnership between public and private sectors, including development capital to leverage and catalyse resources for growth.
Other key objectives of the budget include:
(i) Focusing on critical on-going infrastructure projects such as roads, railways, power, ICT, etc., that have quick positive effects on the economy;
(ii) Utilising Special Economic Zones and Industrial Parks as vehicles to accelerate domestic economic activity for innovation and wealth creation;
(iii) Contributing to food security and creating platform for agro-business in agriculture supply chains through the Agriculture Green Alternative Plan;
(iv) Establishing a Social Housing Fund to deepen the mortgage system and expand its availability across all states of the Federation;
(v) Encouraging and stimulating the growth of small and medium scale industries for innovation, job creation, productivity and wealth creation; and
(vi) Providing social safety nets for poor and vulnerable Nigerians.
Key assumptions and
macro framework for the
budget
The key assumptions and macro-framework for the budget are:
(i) Oil production – 2.2mbpd
(ii) Benchmark oil price
– $42.5/b,
(iii) Exchange rate – N305/US$
(iv) Inflation rate- 15.74 per cent
(v) GDP Growth Rate
– 2.5 per cent
(vi) Nominal Consumption (N’trillion) – 87.95
(vii) Nominal GDP (N’trillion) -107.96
Key budgetary reform
initiatives
The key budgetary reform initiatives to improve the revenue base of the country include:
(i) Subjecting the JV operations to a new funding mechanism, which will allow for cost recovery. Additional oil-related revenue include: royalty recoveries, marginal field licenses, early licensing renewals, etc;
(ii) Sustaining the use of TSA to monitor the financial activities of over 900 MDAs from a single platform;
(iii) Broadening the tax base, improve effectiveness of revenue collecting agencies, improve tax compliance etc;
(iv) Reducing leakages by tacking trade mis-invoicing and introducing the single window to drive customs efficiencies;
(v) Improving the performance of independent revenue of government by ensuring that all MDAs (particularly revenue generating MDAs) present their budget in advance, and remit their operating surpluses as required by the FRA;
(vi) Extension of the Integrated Personnel Payroll Information System (IPPIS) to all MDAs.
2017 Budget revenue
proposals – Where the
money is coming from
An overview of the
revenue framework
Based on the key assumptions and budgetary reform initiatives, the 2017 Budget envisages a total FGN revenue of N4.94 trillion, exceeding FY 2016 projection by 28 per cent. The projected revenue receipt from oil is N1.985 trillion and non-oil is N1.373 trillion. The contribution of oil revenue is 40.2 per cent compared to 19 per cent in 2016 financial year driven mainly by JVC cost reduction, higher price, exchange rate and additional oil related revenues.
The details of the revenue as summarised below:
2017 Budget expenditure
proposals – Where the
money is going
21. The 2017 Budget has an outlay of N7.298 trillion. This represents an increase of 20.4 per cent over the 2017 budget provision of N6.06 trillion. The details are:
(i) Statutory transfers of N419.02 billion
(ii) Debt service of
N1.66 trillion (22 per cent);
(iii) Sinking fund of
N177.46 billion (2.4 per cent)
to retire certain maturing bonds;
(iv) Non-debt recurrent
expenditure of N2.98trillion (40.8 perc ent); and
(v) Capital expenditure of N2.24 trillion (30.7 per cent) inclusive of statutory
transfers.
Financing the deficit
The overall projected budget fiscal deficit of N2.36 trillion for 2017, which is about 2.18 per cent of GDP. This is within the threshold stipulated in FRA. The budget deficit is to be financed mainly by borrowings which have been projected at N2.32 trillion. Of this amount, N1.067 trillion (46 per cent of this borrowing) is intended to be sourced externally, while N1.25 trillion will be sourced domestically. The debt service to revenue ratio is projected to be about 33.7 per cent in 2017 financial year.
Break down of recurrent
(non-debt) expenditure
The recurrent non-debt expenditure of N2.98 trillion is made up of:
i. Personnel costs – N1.86 trillion (63%)
ii. Overhead – N229.81 billion (7%)
iii. Service-wide vote pensions – N89.98 billion (3%)
iv. Consolidated Revenue Fund Pensions – N191.63 billion (6%)
v. Other Service-wide Votes – N116.50 billion (5%)
vi. Presidential Amnesty
Programme – N65 billion (2%)
vii. Refund to special accounts – N50 billion, and (2%)
viii. Special intervention Prog. (recurrent) – N350 billion (12%)
The largest recurrent allocations are for the following four MDA’s namely:
i. Ministry of Interior – N482.37 billion;
ii. Ministry of Education – N398.01 billion;
iii. Ministry of Defence – N325.87 billion;
iv. Ministry of Health N252.86 billion.
These four MDAs collectively take up about N1.46 trillion (about 70 per cent) of the combined provision for personnel and overhead). They have the largest share because of the size of their personnel. Some of the agencies and parastatals under these MDAs are yet to be captured on the Integrated Personnel Payroll Information System (IPPIS) platform. The sum of N2 billion has been provided in the 2017 Budget for the capturing to ensure all personnel that are not enrolled on the platform are captured.
Capital expenditure
in the proposed budget
The administration has committed to allocating at least 30 per cent of the budget to capital from 16 per cent allocation in 2015. In dollar terms, the 2017 Budget proposal at ($23.80 billion) is lower than 2016 estimates ($30.76 billion). As a percentage of GDP, we have grown the size of the Budget from 4.7 per cent in 2015 to 5.9 per cent in 2016 and to 6.7 percent in 2017. Compared with South Africa (20.7 per cent) and Ghana (19.2 per cent) as at 2015, this is very low. The ratio of capital spending in total increased from 16 per cent in 2015 to 30 per cent in 2016 and 30.7 per cent in 2017. The increase in infrastructure spending is expected to enhance revenue generation opportunities and over time significantly reduce deficit.
MDAs capital allocations
by pillar
A significant part of the budgeting provision was allocated to reflect the Administration’s development priorities. This is aimed at engendering good governance practices and providing enablers for economic recovery and growth. Some of the key sectoral capital allocations in the 2017 Budget are as follows:
(i) Infrastructure 56%
(ii) Governance and security
20%
(iii) Economic reforms/growth 12%
(iv) Social development seven per cent
(v) States and regional
development
four per cent
(vi) Environment one per cent
Major MDAs’
capital allocations
There is a need to emphasize that the thrust of the 2017 Budget is to partner with private and development capital to leverage and catalyse resources for growth. By setting aside N2.24 trillion (inclusive of capital in statutory transfers), which is 30.7 per cent of the total budget for capital expenditure, the objective, as set out in the SIP, of devoting at least 30 per cent of the budget to capital expenditure has been achieved. Much of the capital provision is directed at those projects which will facilitate economic growth, diversification, competitiveness, ease of doing business, social inclusion, jobs as well as governance. This will ultimately engender the attainment of the Sustainable Development Goals (SDGs). In this regard, focus will be on initiatives in sectors such as agriculture, manufacturing, solid minerals, and services. Consequently, capital allocations to MDAs within these sectors were significantly enhanced.
