With the signing into law of the 2019 Budget by President Muhammadu Buhari on May 27, 2019, the dust raised by the delay in passing the Appropriation Bill by the National Assembly has finally settled. The approval of the budget by the two houses of the National Assembly came with an increase from the initial N8.83trillion presented by President Buhari to N8.92trillion. The increase, thus, pushed the budget deficit to a staggering N1.92trillion.
This astronomical rise in deficit is coming at a time the country is still battling with issues associated with funding the budget amid falling oil prices and low production output. The Nigerian Xpress Economic Intelligence Team relying on data from the Central Bank of Nigeria, Debt Management Office, National Bureau of Statistics and Budget takes a look at the effect of the rising budget deficit on the economy, how to finance the budget moving forward and files this report.
President Muhammadu Buhari on May 27, 2019, signed into law the 2019 Appropriation Bill, thus signaling the kick-off of the country’s N8.92 trillion budget. But one worrisome development in the budget was the high level of deficit, which hit an all time high this year, leaving both President Buhari and his immediate past Minister of Budget and National Planning, Senator Udoma Udo Udoma, wondering where the country would get the resources to fund the extras.
Udoma lamented that increasing the budget to N8.92 trillion from the initial N8.83 trillion by the National Assembly has raised budgetary deficit by N58.83 billion, thus putting the government under pressure of how to fund it, noting that the action would likely lead to increase in borrowing.
According to Udoma, “The National Assembly increased the budget size from N8.83 trillion to N8.92 trillion, translating to an increase of N90.3 billion. This resulted in an overall increase of N58.83 billion in deficit. Inexplicably, the National Assembly reduced the proposed borrowing from N1.649 trillion to N1.605 trillion, thus creating an overall unfunded deficit of N102.83 billion. To fully fund the budget, the level of borrowing may, therefore, have to increase,” he lamented.
2019 budget in danger
The 2019 budget was predicated on a 2.3mbpd oil production output and a benchmark of $60. However, the event of the past few weeks have given a cause for concern. Global oil prices have tethered around $60-$66 and if the stagnation continues, a monumental economic disaster looms.
Oil production output is another kettle of fish entirely. While the country’s economic planners predicated the budget on a 2.3mbpd production output, the statistics staring in the face is rather gloomy. For instance, oil production within the past few months has not really grown beyond 1.7mbpd. The country produced 1.733mbd of oil in December; 1.731mbd in January; and 1,741mbd in February, indicating just about 10,000 barrels a day difference between January and February 2019 production. Even if the Egina FPSO comes on stream with 200,000bd of oil addition, it could at best push the country’s oil production to about 1.9mbd, but not the 2.3mbd benchmarked in the budget.
According to Dr. Bunmi Binitie, a public commentator, the situation currently playing out calls for concern.
“We have prepared our budget for 2019, and benchmarked oil prices in the budget at $60 per barrel with crude oil production of 2.3 million barrels per day, while the global oil price gives a bit of comfort in prices, but the same cannot be said of our production levels. Our oil production within the past few months has not really grown beyond 1.7mbpd, indicating that even if prices maintain healthy growth, the country’s limited production levels would still remain an issue for concern,” he said.
Where the funding for the budget is expected to come from
The Federal Government said it is expecting to generate total revenues of N7 trillion to fund the 2019 Budget; comprising N3.69 trillion from oil revenues and N3.31 trillion from non-oil revenues, while the deficit of N1.92 trillion would be financed mainly by borrowing N1.605 trillion, split equally between the domestic and foreign markets. But between 2015 and 2017, the government has earned a total revenue of about N8.8 trillion compared to a budgeted revenue of N12.3 trillion, representing a shortfall of about 3.5trillion or 29%. The dismal performance, particularly in 2017 where actual revenue was N2.6 trillion compared to a budget of N5 trillion ballooned the budget deficit to about N3.8 trillion, the highest so far. In order to plug this gaping hole, the country has resolved to borrowing, which according to many industry’s experts calls for serious concern.
Cutting the frivolities in the budget
Taking a look at how the budget will be spent is another source of worry. Recurrent non-debt expenditure is pegged at N4.07 trillion; Ministries Department and Agencies (MDA’s) capital and capital supplementation are N2.09 trillion; while debt service at N2.14 trillion, represents about 31 percent of the total expected revenues.
A critical look at the budget gives serious cause for concern.
For example, Nigeria’s Ministry of Defense has budgeted a payment of 1st phase of outstanding liabilities of N943.7 million.Similarly, the huge sum of N5bn has been budgeted to offset MDAs electricity bill. If you think that is alarming, wait for this. The Nigerian Institute of Transportation Technology, NITT has presented a budget of N3.17 billion for the procurement of spare parts and lubricants for the locomotives, ongoing coaches and wagons.
What makes this frivolous is that according to the law setting up NITT, its only job is to “provide training to personnel employed in all modes of transport.” It is, therefore, alarming that it needs N3.17billion to buy spare parts and lubricants. What brought it into spare parts and locomotive business?
The federal government also budgeted the sum of N350 billion for Special Intervention without the details of the projects and beneficiaries and another further N150 billion for Special Intervention Programme.
Can taxation fix the deficit?
According to the Federal Government, it plans to finance Nigeria’s N1.92tn budget deficit in 2019 by introducing new taxes and adopting a concessionary financing system under its privatization programme.
If the word of the Executive Chairman, of FIRS, Mr.Babatunde Fowler is anything to go by, the institution he heads plans to perform better in 2019 than in 2018. The question is, from where will the taxes come?
In his words “For the year 2018, the Federal Government gave the FIRS a collection target of N6.747tn. Analysis of actual collection figures for the year ended December 2018 shows that we collected a total of N5.320tn, which represents 78.86 percent of the target.While the collection figure for 2018 was significantly higher than ever before, the FIRS is not resting on its oars and is continuing with the implementation of various measures to ensure that tax revenue collection significantly improves further in 2019.”
Such measures, according to Fowler, include Strategic Revenue Growth Initiative, tax audit, use of technology such as VAT Auto Collect, State Offices of Accountant-General Platform, integration for Federal Government MDAs, e-Service and mobile payment options.
Others, he said, were sustained enforcement activities, Voluntary Assets and Income Declaration Scheme and amendment to tax laws to improve collection.
PPP is the way forward- Stakeholders
According to Mr. Kayode Fadahunsi, the Chief Executive Officer, Prosperis Holdings, Federal Government should urgently implement policies aimed at growing and diversifying the country’s revenue base while encouraging the country to look the way of Public-Private Partnerships that has the revenue stream capable of solving Nigeria’s budget deficit.
“Public-Private Partnerships are increasingly being modeled in countries around the world and are not only cost-effective but if properly structured, will provide a viable profit-sharing system and revenue stream capable of bridging and eventually solving Nigeria’s budget deficit issues.It is sad to say that we have not learned our lesson, we are back to the business of spending as usual. The reality in Nigeria today is that governments struggle to keep up with their expenses and as a result, the gap between the income and expenses widens daily. For the most part, investment banks assist State governments by financing these deficits. However, this is not a sustainable practice as expenses continue to outgrow income” he said.
The Managing Director of Kairos Capital, Sam Chidoka agrees with Fadahunsi and urged Nigeria to look at the way of Public Private Partnership, PPP and concessioning to bridge the huge deficit in the country.
‘In the past, the government has really not been able to finance infrastructure from the budget, this is why you find a lot of projects not being financed. The budget does not really have the capacity to finance those capital projects, so we either have to borrow to finance them or we look towards Public-Private Partnerships. Expecting that we are going to finance a significant infrastructure from the budget was something that was not sustainable, there was no basis for us to expect it to happen because the size of infrastructure deficit that we have is far beyond what our annual budget can expect to meet, we need to look towards PPP to finance our infrastructure deficit.” he said.