The Budget Office of the Federation has released Nigeria’s approved budget for 2020. According to Premium Times, the appropriation bill, which aims at sustaining growth and job creation, was expeditiously passed thereby restoring the Federal Budget to a January – December budget cycle. It is the earliest approved budget since Nigeria’s return to civilian rule in 1999.
A cursory glance at the budget figures indicates that Nigeria anticipates generating revenue of ₦8.42tn while targeting to spend ₦10.594tn in expenditure. It hopes to generate 47.2% of its revenue from other revenue sources, 31.4% from oil revenue, and 21.5% from non-oil revenue. 42.4% of the budget will be expended on recurrent expenditure. 23.4% will go into capital expenditure while over 23% of the budget will be used to service the nation’s debts. A budget deficit of ₦2.175tn is anticipated in the 2020 budget.
To fund the deficit, the Federal Government plans to raise ₦252bn from privatization proceeds, ₦744.99bn from new domestic borrowing, ₦850bn from new foreign borrowing, and ₦328bn from draw-down on multilateral/bilateral loan agreements. Technically, only 11.57% from privatization proceeds will be sourced without incurring additional debts on the country with a considerable debt profile. As at the end of the first half of 2019, pulse.ng reported that Nigeria’s debt profile stood at $83.88bn. This figure is exclusive of The Cable’s reported $30bn loan request being considered by the Federal Government.
With a glance, a couple of things can be observed from the budget. Perhaps the first is the country’s increasing debt profile. One question to ask is that with over 23% of the budget expenditure going into debt servicing, can Nigeria afford to borrow more? This is also against the background that budgetary allocation to debt servicing is almost about 30% of the total anticipated revenue.
Closely related to Nigeria’s increasing debt profile and the implications of additional debts is the breakdown of capital and recurrent expenditures. About 42.41% of the total budget spending will be on recurrent expenditure. With Nigeria’s huge development setbacks and the supposed aspirations for development, the ratio of capital to recurrent expenditure appears a bit discomforting. This bears some semblance with PM News Nigeria’s report in 2019 that Nigeria’s budgets may not make much impact if it continues to allocate huge percentages to recurrent revenues and unmonitored statutory transfers.
With a significant 31.35% of the revenue being anticipated from the oil sector, the risk of a crash in the global oil prices is another question raised from the appropriation bill. While Nigeria has had some consistency in oil revenue in the last couple of years, the possible crises in the Middle East may result in fluctuating oil prices. For instance, while S&P Global suggests that the US war with Iran is unlikely, it agrees that such may devastate oil markets. Should such crises generate negative effects on Nigeria’s oil market, then the country will experience considerable revenue challenges within the budget year. Conversely, there is a possibility that Nigeria may be tremendously enriched even with the crises.
The appropriation bill also reveals that Nigeria will be funding some of its budget deficit with privatization proceeds. While the Citizen’s Guide to FGN’s 2020 Budget does not provide in-depth details of this, it is easy to ask if Nigeria is anticipating new privatizations, which enterprises will be privatized, and the modality for any intended privatization. This is particularly important because of the shortcomings of some past privatizations in the country. For example, in 2018, Premium Times reported the claim of the Director-General, Bureau of Public Enterprises, that about 37 per cent of the enterprises that have been privatised or commercialised is not doing extremely well.
As Nigeria moves into a new budget year, it should pay close attention to its revenue generation as well as its spending. While there are different views on how borrowing can aid developmental aspirations, Nigeria should become intentional about reducing the cost of governance. The country also needs to develop robust strategies to improve revenue generation while blocking leakages in the generation and utilization of funds. It should also make accelerated interventions on economic diversification and create regimes that will aid trade, investment, and growth.
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