Review of the 2021 federal budget (1)

The President, Major General Muhammadu Buhari (retd.), during the outgone week presented the 2021 federal budget estimates to the joint session of the National Assembly. It is a positive development that the estimates were presented early providing an opportunity for its passage before the end of the year and for implementation to start in January 2021. The proposal to present a tax expenditure statement, a requirement of the Fiscal Responsibility Act which has been ignored in the past, is also a positive development.

It is imperative to explore the performance of the Nigerian economy in the last couple of months to situate the estimates in a proper context. According to the second quarter budget implementation report, the value of Nigeria’s total imports amounted to N4,022.90bn during the period. This represents an increase of 10.69 per cent when compared with the level recorded in the first quarter of 2020. Exports in the second quarter of 2020 stood at N2,219.50bn, indicating a decrease of45.64 per cent and 51.73 per cent when compared with the figures recorded in the first quarter of 2020 and the second quarter of 2019 respectively. The 2020 half-year export amounted to N6,302.40bn, reflecting a 31.0 per cent decline from the half year performance of 2019. The above development resulted in the further deterioration of trade balance to a deficit of N1,803.30bn compared to a deficit of N421.3bn and N579.06bn recorded in the first quarter of 2020 and the fourth quarter of 2019 respectively. Nigeria’s official gross (external) reserves stood at US$36.46bn as of the end of June 2020.  The total public debt stock as of June 30, 2020 stood at US$85,896.52m (N31,008.64tn). Average oil production (including condensates) in the second quarter of 2020 was 1.81mbpd while unemployment stood at 27.1% and inflation at 13.2% in August 2020.

In the implementation of the amended 2020 budget, only N2.10tn came in as actual revenue between January and July 2020 and this is a 32% underperformance from the prorated 2020 budget revenue. Of the N10.81bn 2020 budget, N5.84tn was the projected aggregate revenue with a deficit of N4.98tn which was to be financed mainly from borrowing. We are about entering a recession if we post negative GDP growth by the time the third quarter results are out.

In the fiscal assumptions for 2021, the benchmark price of $40 per barrel and daily production of 1.86mbpd are realistic based on empirical evidence. However, there is no information on excess crude oil for the oil majors which is used to pay joint venture cash calls.This information will guarantee that the NNPC operates transparently without undue withholding of funds meant for the Federation Account. The exchange rate of N379/1USD is not realistic considering the notorious fact that very few businesses and individuals can get the dollar at that rate.The GDP growth rate which is projected at 3.0% is unrealistic considering that Nigeria is about entering recession and had a -6% negative growth in the last quarter, and nothing has changed to indicate a growth trajectory. The inflation rate projected at 11.95% seems far-fetched with the August inflation at 13.2% before we start factoring in the push occasioned by fuel price and electricity tariff increases. Again, with a depreciating currency which will continue to factor in import prices in the domestic market; the political instability occasioned by the terrorism in the North-East and the same terrorism exported to the North-West but officially renamed banditry also implies that food production from the regions will stagnate pushing up the price of foods and agricultural produce. The foregoing may be compounded by agroclimatic conditions which may not be favourable to Nigeria.

Turning to the revenue framework, N7.886tn is projected including grants in aid and revenues of 60 government-owned enterprises. Oil revenue is projected at N2.01tn and non-oil revenue at N1.49tn totalling N3.5tn. These projections are realistic based on empirical evidence. Where is the balance coming from? We have N208.5bn expected from the share of the Nigerian Liquefied Natural Gas dividend which is realistic.  N961.8bn is expected from independent revenue; this is realisable but has never been realised in the past. For the Federal Government to realise this revenue head and even get more from it, it should plug the leakages in the system by sweeping all due sums into the Treasury Single Account and later disburse the sums due to the MDAs to them after collecting its portion.

N300bn is expected as balance in special levies accounts and N677bn as share of signature bonus. There is no certainty of Nigeria holding an oil licensing round to guarantee the share of the signature bonus. Even if this is held, with the prevailing uncertain fiscal environment occasioned by the non-passage of the Petroleum Industry Bill(s) and the worldwide declining interest in oil, it may be difficult to realise such projected sum.The stamp duty projection of N500bn is shrouded in mystery because the Federal Government has not come clean to give an account of previous realisations from this revenue head.  It is projected that the revenue head holds so much promise if properly managed. The projection of N2.173tn from government-owned enterprises is deliberately put in to deceive the uninitiated. If this is the expectation for 2021, how much came into the federal treasury from this head in 2020 or in previous years? In fact, there is no such money expected or that will be available to fund the federal budget outside of government’s independent revenue. Thus, this should be discounted as a source of revenue.

Nigerians will recall being told of humongous sums of money that would be saved if subsidy was removed and the price of petrol became market reflective. Where are the savings which should have been used to fund the federal budget? Why would the Federal Government be still expecting the paltry N2.01tn from oil revenue after removing the subsidy? Something is not adding up and Nigerians demand explanations. Grants and donor funds of N354.8bn seem ambitious but if the sums are already products of signed contracts, then this will be great.

With all these obviously optimistic revenue projections, we still have a shortfall, a deficit of N5.20tn. The implication is that the deficit will be more than projected. This implies that the budget is severely challenged from inception. There is a projection to borrow over N4.2tn to fund the deficit. But how does this reconcile with our debt reality?