Tag: Muhammadu Buhari

The 2020-2023 Medium Term Expenditure Framework and Fiscal Strategy Paper warns that there will be challenges to the economy during these periods. Assistant Editor NDUKA CHIEJINA examines the strategy paper

THE 2020 – 2022 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) outlines the Federal Government’s fiscal policies/strategies and macroeconomic projections for 2020 – 2022. It also provides a broad framework for the annual budget in line with the Fiscal Responsibility Act (FRA), 2007.

In crafting the 2020-2022 MTEF/FSP, the government said it expects “more diversified and inclusive growth over the medium-term, and reduction in the rate of unemployment, as we continue to implement the priority policies and programmes that will boost inclusive growth.” This is because President Muhammadu Buhari said employment would be a key focus of his second term.

Finance and National Planning Minister Zainab Ahmed, while presenting the MTEF/FSP document, added that success has been recorded in containing the insurgency in parts of the Northeast with economic activities recovering. However, recurring conflicts between farmers and herdsmen in some parts of the country, as well as incidences of flooding, have affected agricultural production.

She added that “militancy in the Niger Delta has generally abated, although breaches of pipelines still regularly occur. This was partly responsible for the lower than projected oil production volume in the first half of the year. Except for a few months, inflation has continually declined since January 2017 from 18.72% to 11.08% in July 2019.”

Key assumptions

The Underlying Assumptions of the 2020 – 2022 MTFF projects that oil production volume will average 2.18mbpd for 2020. Although this is lower than the projected oil production volume of 2.3mbpd for 2019, Mrs Ahmed said: “We believe that this is a more realistic projection. For 2021 and 2022, the projections are 2.22mbpd and 2.36mbpd respectively. Actual daily crude oil production and exports have been well below budget projections since 2013, despite the installed capacity of up to 2.5mbpd, for many reasons.”

A lower benchmark oil price of $55/b (against $60/b for 2019) was also projected because of “the expected oil glut in 2020, as well as the need to cushion against unexpected price shock. There are strong indications of an oversupplied market in 2020.”

All three of the major forecasters – Organisation of the Petroleum Exporting Countries (OPEC), International Energy Association (IEA) and the U.S Energy Information Administration (EIA) generally see non-OPEC production growing by around 2mbpd this year, and by even more next year. U.S. shale oil accounts for most of the total supply increase, but new projects in Norway, Brazil and Australia will also contribute to the increase in non-OPEC supply. Also, market sentiments do not support an expansion in demand. The growth in demand for OPEC oil specifically is projected to slow down next year.

Real GDP growth rate projections are put at 2.93 per cent, 3.35 per cent and 3.85 per cent for 2020, 2021 and 2022.

“Even though this falls short of the ERGP projection, the trajectory remains in the right direction,” Mrs Ahmed said.

On the expenditure side of the framework, the minister said the government has tried to keep most expenditure items as low as possible. The Federal Government, she said, has proposed a budget estimate of N9.789 trillion for next year. For the next two years, she stated that N10,110,193,322,738 will budgeted for 2021 and N10,418,391,196,907 for 2022.

There will be a sustained growth of statutory transfers of N526,456,288,013 in 2020, N560,165,806,678 in 2021 and N602,577,931,995 in 2022. For debt servicing in the next three years, N2,452598,930,000 will spent in 2020, N2,737,051,570,000 in 2021 and N2,942,639,740,000. To settle matured government obligations like bonds and Treasury Bills (TB), under the sinking fund item, government plans to spend N296,000,000,000 in 2020, N220,000,000,000, in 2021 and N286,670,000,000.

For three years, the Presidential Amnesty Programme will gulp N65 billion annually from 2020 to 2022. Projections for the entire Service Wide Vote (SWV) comprising transfers to NBET and GAVI Immunisation, in the next the three will gulp N1,371,552,510,357.

Mrs Ahmed said 2020 to 2022 fiscal years would be very challenging concerning revenue generation and rapid growth in personnel costs. She attributed the growth in personnel cost to the creation of new ministries and appointment of additional ministers.

The finance minister was confident that the government will take firm decisions to address the revenue shortfall and increasing personnel cost. To contain rising personnel cost, she disclosed that “any government staff not captured in the Integrated Payroll and Personnel Information System (IPPIS) by October 2019 will not be paid.”

A development economist and financial expert, Mr Odilim Enwegbara, who serves as Chairman/CEO at Pan Africa Development Corporate Company (PADCC) said: “The economy is not growing because of political instability and insecurity now a commonplace.”

According to him, “the continued over-centralisation of the economy which is the basis for revenue collection, remittances and distribution centralisation has made it easier for tax evaders to exploit as well as for tax collectors to fail to remit government collected taxes. So, understandably, diversion of taxes especially value-added tax is unbelievably so high. So the revenue crisis becomes inevitable.”

Enwegbara added that “besides poor economic performances, causing revenue crisis, it is the nonexistence of modern tax collection and remittance infrastructure that has been the real basis for government’s inability to collect taxes. Hence, the focus on borrowing against tax. This has increasingly endangered the economy to the extent that today our debt service to revenue ratio is at 70% — and expected to reach 80% before the last quarter of 2020. This ratio has become the highest amongst peers’ economies, causing foreign investors to now systematically avoid Nigeria’s economy and its looming bankruptcy.”

To address these challenges to revenue, Eweagbara identified some steps to be taken to include investing in “Easy VAT technology which makes it impossible for VAT evasion, let alone VAT diversion. FIRS is already in possession of the proposal which by blocking the current loophole which is as high as 70% will bring in extra trillions of naira into the TSA.”

This, he said, “is beside the proposed increase of VAT from the current 5% to 7.20%. Even though our VAT rate ought to be as high as 15%, at least let’s start at 7.20%. The only problem is that once you increase VAT at a time there’s no corresponding growth in citizens’ purchasing power, consumption of certain products will drastically reduce and this will lead to laying off of workers as factories begin to witness larger part of the products unsold. This too will lead to fewer companies paying fewer taxes to the government. Also, there’s an element of inflation. Most important, as a result of high tax evasion, the economy becomes unfair to those who are ready to pay tax against those who evading tax.”

From 2020, the budgets of all MDAs and Government Owned Enterprises (GOEs) will now be contained and published in the nation’s annual budget.

In 2020, the Federal Government plans to cut N1.16 trillion off capital expenditure from N2.92 trillion in 2019 to N1.76 trillion in the proposed 2020 budget.

This will then see capital expenditure dropping to 21 per cent of total expenditure in 2020 compared to 32 per cent in the 2019 approved budget.

The minister said Nigeria is planning to trim its budget for 2020 marginally by 0.19 per cent to N8.90 trillion, as against the N9.16 trillion approved by lawmakers for 2019.

The government approved a 34 and 66 per cents capital/ recurrent expenditure fiscal policy in 2018 and 32 and 68 per cents in the approved 2019 budget.

Details of the medium-term expenditure framework (MTEF) and fiscal strategy paper (FSP) 2020-2022 showed that capital expenditure will suffer successive cuts for the three-year period to N1.76 trillion, N1.70 trillion and N1.68 respectively for 2020, 2021 and 2022 despite increases in total expenditure at N8.6 trillion, N8.98 trillion and N9.4 trillion during the same period. Recurrent on the other hand is expected to increase from N3.41 trillion in 2018 to N4.7 trillion in 2019.

In the coming year, the government plans to borrow N1.7 trillion in 2020. Of this amount, N850 billion will be domestic borrowing while the balance of N850 billion will be from foreign borrowing.

“The draft 2020-2022 Medium Term Fiscal Framework shows that Nigeria faces significant medium-term fiscal challenges, especially concerning revenue generation and rapid growth in personnel costs,” the minister said.

Thus, key reforms, such as the Strategic Revenue Growth Initiative (SRGI), will be implemented with increased vigour to improve revenue collection and expenditure management.

Mrs Ahmed added: “In furtherance of our objective of greater comprehensiveness and transparency in the budget process, it is proposed that the FGN budget from 2020 will reflect the revenues and expenditures of GOEs and the multi-lateral/bi-lateral project-tied loans and related expenditures.”

2020 and the following years will be interesting. As the finance minister warned that the year will be challenging, she announced that 35 state governments would start refunding the N614 billion bailout/budget support fund extended to them a couple of years ago. The government, she said, will start recovering the N614 billion budget support facility from state governments this month.

States, the minister said, will start getting direct debits from their monthly Federation Account Allocation Committee (FAAC) disbursements.

According to her, “the recovery process for us is to deduct from the FAAC allocation to the states and then we remit to the CBN and we are going to start these remittances by the next FAAC” which will hold in two weeks.

To show how serious the government is about making the deductions, the finance minister revealed that “there will be no requirement for us to consider the FSP implementation. We do that as a matter of wanting the states to stay on the path of fiscal sustainability but it will not be a condition for the deduction. We will deduct direct at source and remit to the CBN.”

“The N614 billion bailout funds to states is not going to form part of the revenue for funding the budget, it was a loan which was advanced by the CBN and the repayment will be made to the CBN.”

Last month, a committee was put in place to facilitate recovery of N614 billion given to 35 states. 35 states benefited from the facility, and each state is expected to pay back the equivalent of N17.5 billion.

On the N650 billion to the states the minister spoke about, it was conditional budget support provided by the CBN to help states pay salaries gratuities and pensions. CBN provided N650 billion in loans at 9% with a grace period of two years. The Federal Ministry of Finance helped in disbursements with documented approval by the presidency. That was why the finance minister said the money belongs to the CBN and is going to be paid into CBN account.

With regards to incentives and waivers given to investors, the finance minister said: “We have too many incentives and too many waivers. But our partners in the trade will not necessarily agree with us. We also agree that there has to be a review of the pioneer status certificate issuance process because the waivers and the incentives are costing us a lot.”

She cautioned that government will not just withdraw its decision on granting pioneer status accorded to some investors, adding that “when a decision has been made and approvals have been given, and a private business makes an investment decision based on those incentives, you can’t pull it out overnight. So, there has to be a period within which the commitments that have been made are allowed to exit before you impose new conditions.”

She added that the government is “currently reviewing the quantum of waivers. The idea is to see which one we can begin to pull back and throw away from the pool to reduce the cost of government. But to encourage businesses and to make Nigeria competitive, some of them are essential.”

With Nigeria joining other African countries to sign the agreement establishing the African Continental Free Trade Area (AfCFTA), there could be tremendous opportunities for Nigeria in the medium term. However, the AfCFTA could also create a nightmare situation for the country unless the right policies and actions are implemented expeditiously to improve Nigeria’s economic competitiveness.

An economic expert, Mr Tope Fasua, noted that “the figures are depressing really because from the plans between now and 2022 there is nothing to look forward to.”

He described the MTEF and the proposed 2020 budget as “very dismal…precisely they want to do the same N8.9trillion next year N9.3trillion the year after 2021and of course N9.7trillion for 2022 and what that means is that the rate of growth in the budget is much lower than the rate of inflation and that’s scary.”

Fasua proposed that “we should try and increase our budget at least by the rate of inflation. Every body’s salary should increase year on year by the rate of inflation to cover for inflation, that’s how it’s done every year.”

The rate of growth in the budget, he said, “is bizarre and again other things I noticed includes that we are going to have a continued deficit financing as a matter of fact, we are doing 27 per cent deficit financing this year but we want to do 28 per cent deficit for next year 29 for 2021 and 20 per cent for 2022. Now if you look at the fact that we are going into AfCTFA and of course we are even talking about the West African Monetary Union, there is a standard that needs to be maintained in terms of yearly budget deficit 27%, 28%, 29% is way above that limit and in fact its only recently we started having this kind of budget deficit because normally you usually want to keep your budget deficit around 3% to 6%. 10% should be too high, I don’t know where we are going if you ask me it’s a bit really scary. We want to have some clarification.”

With regards to borrowing, Fasua said: “N1.6tn this year, 1.7tn next year and 1.3tn in 2022 and I see that the borrowings are intended to be split 50:50 between local and foreign borrowing. That means we are not getting out of this borrowing circle. I think the pressing thing is that the projections are bleak.”

He advocated for “fundamental thinking to take us out of this kind of a spiral, we need to take ourselves out of the spiral; we need to be able to reduce our deficit budget substantially.”

According to him, “we need to begin to look at other sources of funding our budget beyond our borrowing as well. Remember that we went into the recent recession in 2016, chances are with the way this budget is done, it’s quite fragile that if any of the projections are missed and of course the major projection here is crude oil prices which they have targeted at $55 for the MTEF going forward because the ministry has also said that they expect there to be an oil glut by 2020 which is what OPEC projects.”

Fasua feared that if there is any major shift or even a slight shift in the negative, the country would go into recession.