President Muhammadu Buhari, last Tuesday, signed the harmonised budget of N10.59 trillion for the year 2020 into law. AHURAKA YUSUF ISAH, in this report, writes on the real value of the budget
President Muhammdu Buhari, while signing the budget, commended the National Assembly for speedy passage of the bill.
“It is my pleasant duty, today, on my 77th birthday, to sign the 2020 Appropriation Bill into law.
“I’m pleased that the National Assembly has expeditiously passed this Bill. Our Federal Budget is now restored to a January-December implementation cycle,” a message posted on Buhari’s twitter page read.
The National Assembly, had on Thursday, 5th, December, 2019 passed the 2020 budget Bill by approving the figure of N10,594,3 62,364,830 trillion as aggregate expenditure, with N263.946 billion above N10.330 trillion earlier proposed by President Muhammadu Buhari on the 8th, October, 2019.
The Senate, sequel to the presentation of a report by the chairman of the Senate Committee on Appropriation, Barau Jibrin, passed the appropriation bill, with an increases from N10.33 trillion presented by President Muhammadu Buhari, to N10.6 trillion (10,594,362,364,830).
In the report presented by Jibrin, N560.47 billion is for statutory transfers (a category into which the National Assembly budget falls).
While the Senate maintained Nigeria’s daily oil production rate at 2.18 million per barrel, it, however, increased the Oil Benchmark Price to $57 per barrel against the $55 proposed by the Executive.
The committee retained the inflation rate at 10.81 per cent and the exchange rate at N305-$1 as proposed by the executive. It also retained GDP Growth Rate at 2.93 per cent as proposed.
Mr Jibrin said the committee worked harmoniously with the Executive for the processing of the bill.
The House of Representatives also passed an harmonised version, which Senate had earlier passed.
The House also passed a motion to ensure that the budget runs from 1st of January to December 31st 2020.
Speaking on the increment, the chairman, House Committee on Appropriations, Muktar Batera disclosed that it is to ensure social intervention.
The new budget appropriated N110billion for the Judiciary, Niger-Delta Development Commission got N808 billion.
At the official exchange rate of N305/$1, ideal value of the 2020 budget is $34.7 billion as against its real value of $29.4 billion as Naira is exchanged at the real market rate for N360/$1.
Yet, in 2018, South Africa was $116 billion against Nigeria’s $23 billion, Angola was doing $124 billion; Algeria $53 billion and Egypt $40 billion. They would have gone beyond these points by now.
The budget figure, as approved by the National Assembly also comprises N4,842,974,600,640 for recurrent expenditure and Capital Expenditure provision of N2,465,418,006,955 trillion. The appropriation bill, as passed by the National Assembly also provided the sum of N2,725,498,930,000 trillion for debt servicing; just as the fiscal deficit of the budget is N2.28 trillion while the deficit to Gross Domestic Product (GDP) ratio is 1.52 per cent.
Before pruning further, a cursory look at the ‘deficit to Gross Domestic Product (GDP) ratio’ is instructive. The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts. Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt, if GDP is dedicated entirely to debt repayment.
A country’s ability to consistently pay interest on its debt without refinancing, and without hampering economic growth, is generally considered to be stable. A country with a high debt-to-GDP ratio typically has trouble paying off external debts (also called public debts), which are any balances owed to outside lenders.
When a country defaults on its debt, it often triggers financial panic in the domestic and international markets alike. As a rule, the higher a country’s debt-to-GDP ratio climbs, the higher its risk of default becomes. President Buhari’s recent request for approval of about $29.6 billion foreign loan would trigger the debt-to-GDP ratio to skyrocket, especially as the details of the loan shows it won’t mostly be applied for revenue yielding ventures.
However, key assumptions and fiscal parameters upon which the 2020 budget was predicated include- crude oil production of 2.18 mbpd while the benchmark Oil Price is US$57. According to the budget document, the GDP Growth Rate is projected at 2.93 per cent while Inflation Rate is put at 10.81 per cent. The 2020 budget bill is equally based on an Exchange Rate of N305 per United States dollar.
The lawmakers approved the retention of N305 to1$, according to the lawmakers to ensure economic stability. This is far from the reality. At the open market, it is N365 to $1. This put the adoption of five exchange rates in the country to question. Many stakeholders said such applications are seriously fueling corruption in the system.
With no end in sight to speculative attacks on the naira coupled with the persistent calls by the World Bank, IMF and the European Union for reforms in the economy especially in the forex market, a euphemism for naira devaluation, an exchange rate of N305 to the US dollar appears unrealistic. According to recent reports, the European Union is advising Nigeria to devalue the naira while the World Bank is making the issue of economic reforms a condition for granting any facility to Nigeria.
With the hindsight of global crude oil price reality, both the federal government oil benchmark of $55 per barrel and $57 per barrel are optimistic. Not a few reputable international organizations are upbeat about oil price performance in 2020. For example, the US Energy Information Administration forecasts “crude oil prices to average $56.5/b in 2020”. Similarly, Goldman Sachs said OPEC deal to cut oil production may provide a short-term support for prices, but chances are it won’t change the supply outlook much. Even the Oil cartel Organisation of the Petroleum Exporting Countries (OPEC) on September 11, 2019 said next year’s oil demand would be outpaced by strong growth in supplies from rival producers such as the US. Consequently, it cut its growth forecast for global oil demand in 2020, indicating that the market would be in surplus. The downward revision in demand forecast comes amid a protracted US-China trade war and Brexit.
Reacting to the new oil price benchmark, a former director general of the Nigerian Social and Economic Research (NISER), Prof. Olu Ajakaiye, said: “It was wrong to move the benchmark price upward. For obvious reasons, the increase would not be to address critical infrastructure. It would be allocated for their own constituency projects, thus polarizing budgeting entities.”
When President Buhari presented the 2020 budget proposal to the joint session of the National Assembly in October 8, he stated that, “the expenditure estimate includes statutory transfers of N556.7 billion, non-debt recurrent expenditure of N4.88 trillion and N2.14 trillion of capital expenditure (excluding the capital component of statutory transfers).”
He had also stated that, “Debt service is estimated at N2.45 trillion, and provision for Sinking Fund to retire maturing bonds issued to local contractors is N296 billion.”
According to Buhari, “the sum of N556.7 billion is provided for Statutory Transfers in the 2020 Budget and it includes: N125 billion for the National Assembly; N110 billion for the Judiciary; N37.83 billion for the North East Development Commission (NEDC); and N44.5 billion for the Basic Health Care Provision Fund (BHCPF).”
Presenting a report to the Senate on Wednesday December 4, 2019, chairman of the Senate Appropriation Committee, Barau Jibrin disclosed that his Committee “worked harmoniously with the Executive arm of government in the processing of this bill which ensured the collaboration of the two arms in the utilization of additional revenue projections to fund/improve the funding of some critical projects which could not be adequately funded in the budget proposals submitted by Mr. President due to constraints.”
He added, “Consequently, the increase allowed for interventions in critical areas such as National Security, Road Infrastructure, Mines and Steel Development, Health, Social needs, and Water, among others. This is also in line with the budget thrust of Government which is focused on ensuring sustainable growth and development.”
Of course, Senate had declared on October 2, 2019 that “as a result of the non-review and amendment of the Production Sharing Contract (PSC) Act, the federal government has lost about US$21 billion (about N7trillion) over a period of 20 years due to the failure to review and amend the PSC Act as at December, 2017” The law, the senate said would be reviewed. But while that is yet to be done, Senate was counting on the prospect.
It is understood that both the legislature and the executive arms of government are disturbed by the low revenue profile of the country, but at the same time short of taking the needed steps to explore abundant opportunities. For instance, the executive has proposed to increase the Value Added Tax (VAT) from five percent to 7.2 percent, yet the Communication Service Tax window which countries like Ghana is exploring to rake in funds is neglected by us. Ghana increased the communication service tax from six to nine percent in September 2019.
Although President Buhari’s administration is warming up to complete the Ajaokuta Iron & Steel project which was built to 98 percent completion by Alhaji Shehu Shagari of blessed memory in four years. But there are also other moribund steel rolling mills all over the places built by Shagari who General Muhammadu Buhari ousted from power in December 1983. The Aluminum Smelter Company of Nigeria (ALSCON) is also rotting there in Ikot Abasi. It is expected if this administration advert its mind toward resuscitation of these industries, the multiplier effect would boast the revenue base of the country.
The lawmakers however took turns to advise the executive arm of government on the implementation of the projects provided for in the budget.
Former deputy president of the Senate, Ike Ekweremadu, drew attention to the ravaging problems of poverty and unemployment in the country pointing out that the diligent execution of budgets would be helpful in resolving the problem.
Also, Senator Fatai Buhari, (APC, Oyo State) said: “We must take oversight duties very seriously to ensure that the gains recorded in passing this budget timely are actualized.”
Senator Bassey Akpan (PDP, Akwa Ibom) said President Buhari has no business to fail because “we passed this budget in time and we have amended all laws to ensure improved revenue base. So all the committees must go to work to ensure that revenues expected are realized.”
Meanwhile, in the approved budget, the Defence sector got the highest vote for recurrent expenditure with N784. 589 billion. It also got the highest vote in the sum of 116.181 billion for capital expenditure.
The Education sector got the second highest recurrent expenditure budget of N490.303 billion as well as N84.728 billion for capital expenditure.
Works and Housing sector got a capital expenditure vote of N315, 563 billion in addition to its N27.983 billion recurrent expenditure.
Dredging further into the 2020 budget shows that Buhari had indicated that the budget is also premised on 20 per cent deficit. That is, out of N10.33 trillion and now N10.5946 trillion, estimated total revenue of N8.155 trillion estimated shall be earned by the federal government revenue. The difference of N2.14 trillion shall be made up through borrowing. But an estimated N2.45 trillion will be used for debt servicing, just as revenue will be made up by a bond or sinking fund of N296 billion. By the time the deficit adds up (borrowed fund) of 2.18 trillion, debt servicing of N2.45 trillion and bond of N296 billion it gives N4.926 trillion which is 47.7 per cent. In other words, the budget is in deficit of 47.7 per cent.
Debt servicing is not synonymous with debt repayment, because the latter is sheer payment of accruing interest. Yet the country is going to borrow N2.18 trillion as well as taking a bond of N296 billion. Of course, all the budgets passed since 2016 were premised on 20 per cent deficit, consequently the budgets were serviced by borrowed funds which incidentally constituting nuisance to current budget planning. The president has asked the National Assembly to approve another about $30 billion loan for him.
The most disturbing situation is that the loans were not obtained for productive economic requirement of the nation. While debating the MTEF/FSP proposals for instance, the just ousted senator from Kogi West, Dino Melaye said it was unacceptable that the country was borrowing money for consumables. “If you want to borrow, it must be 100 per cent for infrastructure. If we do that, we would have helped the country and generation yet unborn,” Melaye said.
Senator Gabriel Suswam (PDP, Benue State) also cautioned against borrowing continuously to finance the budget. He said: “There is a problem with this because the debt profile of the country is N24 trillion. We compare ourselves with these small countries that live on contributions from donor countries and say that our debt sustainability profile should be moved to 56 per cent.”
A development economist, Mr. Odilim Enwegbara asked: “For how long do we have to have such a prodigious Federal Government, a government that can’t stop its borrowing spree? Today, the debt service to revenue ratio is approaching 80 per cent with domestic debt approaching 70 per cent of the country’s overall debt stock.
“With now close to N30 trillion debt and more than N2 trillion annually spent on mere debt service, and without the economy growing in a way that grows government revenues, how does the government want to repay the huge debt, especially at a time its recurrent spending continues to grow in such geometric progression?”
He, therefore, cautioned that unless drastic measures are taken to reposition the economy and grow it with millions of jobs, the country could go bankrupt.
The president had hinted that amendments would be made to relevant laws to improve the tax system and boost revenue. To this extent, he announced that a finance bill would be sent to the National Assembly (and that bill has been submitted and passed).
The president noted: “The draft finance bill proposes an increase of the VAT rate from five per cent to 7.5 per cent. As such, the 2020 Appropriation Bill is based on this new VAT rate. The additional revenues will be used to fund health, education and infrastructure programmes. As the states and local governments are allocated 85 per cent of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well.”
Meanwhile, director general of the budget office, Mr. Ben Akabueze has allayed the fear that the increase in Value Added Tax (VAT) from five to seven per cent would worsen the plight of ordinary Nigerians.
Fielding questions from reporters at the National Assembly complex in Abuja, he said: “VAT is not really a tax that concerns the common man. It’s a consumption tax. You only pay it when you consume the items it applies to.
But Senator Ali Ndume (APC, Borno), who described the budget presentation as historic, was cautious about jumping at conclusions. “I am trying to study the budget, the explanation given by the executive on VAT. I have to study it, so you don’t oppose it in ignorance.
While debating the general principles of the 2020 budget bill on Wednesday October 9, 2019, the senate on the aggregate submitted that it was grossly unrealistic.
Leading the debate, Senate majority leader, Yahaya Abdullahi, said that “the Capital Budget to GDP Ratio is rather too small, (about two per cent of GDP).
“The injection of this amount is a mere drop in the ocean and Is incapable of stimulating the economy to higher growth, wealth creation and employment generation.” he added.
According to him, “The projections of increased Oil Production averaging 2.18 million barrels/day, in the medium term, are subject to very high risks that have had devastating consequences in recent times. Volatility, both at the international market and in the Niger Delta are factors that could make these expectations only tentative.”
The leader of the Senate also reviewed the allocation for capital development in the budget bill and submitted that “when viewed in terms of per capita, the 2020 Capital Expenditure of N2.46 trillion, is paltry.”
Abdullahi also believed that the projected high deficit of N2.18 trillion for 2020 is a direct function of the economy-wide revenue shortfalls, as well as the choice and cost of borrowing.
“Government, particularly the collecting agencies, must improve on their collection capacity. But to do this, there must be robust investments in the real sector so that it could grow to earn taxable revenues.” he advised.
He noted that “debt service as a percentage of Capital Expenditure is still high, while debt service as a Percentage of Revenue should be diminishing.’’
When the minority leader, Enyinnaya Abaribe, took his turn to assess the budget proposal, he described the Budget as a document of taxation, adding that it was contradictory that the President could talk about job creation when he had failed to invest in what should create jobs.
He also observed that “Debt servicing as a component is higher than capital expenditure; while the projected growth as read by the President is 1.9 percent less than the population growth of 2.6 percent.”
Meanwhile, speaker of the House of Representatives, Femi Gbajabiamila had given an insight into why the National Assembly was doing everything to return the country’s budget to the January to December cycle for proper implementation. Besides, the speaker said, the 1999 constitution provides that the country’s budget should run from January to December, except as otherwise prescribed by the National Assembly where there are strong reasons to do so.
Gbajabiamila, who spoke at the opening of a 2-day public hearing on the 2020 budget organised by the joint Senate and House Committee on Appropriation, said having the budget running from another period other than January to December may have “depressing impact on the economy.”
“Many people have asked me what’s the big deal about January to December budget cycle? Why are we so pressed on returning the financial year to January to December? It’s simple, the constitution says so. A lot of people are not aware of it. It’s stipulated in the constitution that ‘the financial year shall be January to December or any other time as prescribed by the National Assembly.’ “Going by the language of the constitution, it means that what it’s exactly saying is that, yes it has to be January to December, but that at any other time, maybe there’s a reason why you’re unable to. But in the main, what is expected is that it’s January to December.
“This allows for proper timing, proper implementation as opposed to what has obtained for some time when budget is passed going to the second quarter of the year. This has its own psychological impact. It has a way of depressing even the economy itself,” the Speaker said. The Speaker added that those were some of the anomalies that the National Assembly seeks to address, saying “We seek to address that carrying Nigerians along.” Gbajabiamila said.
The public hearing was organised to get inputs from Nigerians and the relevant stakeholders so that all parts of the country would be carried along to reflect federal character in projects allocation. “Basically, this 2020 budget speaks for itself. It speaks clearly in English, in black and white. So, there’s no address for me to give.
What we’re here to do is to basically present to the stakeholders the N10.3 trillion budget as presented by the President. It’s for the stakeholders to put this document, examine it before the legislature exercises its full authority as provided for by the constitution.
“So, what we seek to do here is to get the buy-in of all stakeholders from the Nigerian public, because I always believe that nobody is a fountain of knowledge; that even though we’re given the full authority by the constitution to appropriate, we cannot do it alone. In the House, we believe in what we call joint task: Nation Building is a Joint Task.
“This is the first exercise that we will be doing, because the budget of any country represents the blueprint of its economy and the direction it’s going to take. It’s the basis upon which everything else is built. For that reason, we thought it proper to hold this joint public hearing. “What’s the objective? We’re seeking an outcome at the end of this exercise, an outcome that will reflect the true federal character of Nigeria. No lopsidedness. Everybody has an input: North, South, East,West for all stakeholders. So, we’re here to listen; we’re here to take inputs, and at the end of the day, we will exercise our own constitutional authority and powers given to us.
“I must commend the Executive. This is probably the earliest that we had the budget presented to the National Assembly in a long time. We stressed on this, the Senate President and myself, when we came into office. We’re glad that the budget was presented early October. “As a matter of fact, I know that president sought to present this budget towards the end of September, but for exigencies, he could not. Be that as it may, it has come very early, and it is now for us to work on it,” the speaker noted.
