Budget performance and impact have been major issues in Nigeria’s budget implementation. Amid growing budget deficit and weak revenue profile, experts say government needs to focus on optimisation and efficiency of budgetary incomes and spending to make budget more meaningful. Deputy Group Business Editor, Taofik Salako, reports
The Federal Government aptly titled the 2021 budget, “Budget of Economic Recovery and Resilience” , underlining the thematic economic direction after the relapse into recession last year.
With the most optimistic projection for growth at three per cent thIs year, Nigeria needs to accelerate growth to significantly reduce the adverse effect of the COVID-19 pandemic on national economic performance and reignite economic levers to meet national aspirations of infrastructure, jobs and improved standards of living.
The 2021 budget, signed into law by President Muhammadu Buhari on December 31, 2020, stands at N13.59 trillion, 25.7 per cent increase on the 2020 revised budget of N10.81 trillion. The 2021 budget comprised capital expenditure of N4.13 trillion, recurrent expenditure of N5.65 trillion, debt service of N3.12 trillion, sinking funds for maturing bonds at N200 billion and statutory transfers of N497 billion. Non-debt recurrent expenditure thus represents 41.5 per cent of the total budget size, the largest by broad segment. Capital expenditure represents 30.4 per cent of the total budget while debt servicing will take more than one-fifth of the total budget for the year.
Total revenue is projected at N7.99 trillion in 2021, implying a deficit of N5.6 trillion or 3.93 per cent of the Gross Domestic Product (GDP). Fiscal deficit printed at 3.57 per cent of GDP in 2020. Revenue breakdown indicated that the government expects oil revenue of N2.01 trillion with benchmark oil price of $40p/b and oil production at 1.86 mbpd. Revenue from other sources, including independent revenue, signature bonuses, stamp duty and domestic asset sales and recoveries, are estimated at N4.49 trillion while non-oil revenue is projected at N1.49 trillion. The government plans to finance the deficit with new domestic borrowings of N2.34 trillion, foreign borrowings of N2.34 trillion, drawdowns of N709.69 billion from multi-lateral and bi-lateral project-tied loans and privatisation proceeds estimated at N20515 billion.
2020 budget review
A year-end review showed that the government slightly overshot its budget by 1.1 per cent in 2020 with total actual expenditure at N10.08 trillion, as against the revised budgeted amount of N9.97 trillion. The increase was driven mainly by increase debt service, which rose to N3.27 trillion as against budgeted estimate of N2.95 trillion. With the COVID-19 pandemic creating severe disruptions in global economy, with attendant negative impact on national incomes, Nigeria underperformed its budgeted revenue for 2020, even after revising the estimates downward to adjust for the adverse impact of the pandemic.
Against the revised budgeted revenue of N5.365 trillion for 2020, actual revenue stood at N3.937 trillion, a shortfall of 26.6 per cent. The decline was basically due to shortfalls in non-oil revenue and other revenues. Oil revenue had risen to N1.67 trillion, an improvement on N1.1 trillion in the revised budget. However, non-oil revenue closed lower at N1.296 trillion as against budgeted provision of N1.625 trillion while other revenue also closed significantly lower at N994 billion, 62.4 per cent below N2.64 trillion estimated in the 2020 revised budget. With the revenue shortfalls, the government ended up with its highest fiscal deficit, at N6.2 trillion, 33.4 per cent above the budget estimate of N4.61 trillion. The 2020 fiscal deficit was financed primarily through domestic debt issuances of N2.06 trillion, external loans of N1.22 trillion and ways of the Central Bank of Nigeria (CBN).
Data provided by the Budget Office of the Federation showed that budget deficit had risen in five out of the six past budgets. Projected revenue, also provided by the Budget Office of the Federation, showed possible increases in budget deficit over the next two years with total revenue expected to remain below N8.5 trillion by 2023.
Experts and analysts said the headway for Nigeria is to optimise its revenue and expenditure to ensure better budget implementation and impact on the economy. With huge infrastructural deficit, unemployment, security challenges and continuing dependence on the volatile crude oil, experts said the yearly budget has major roles to play in achieving national economic growth, employment generation, reduction of economic disparity and inequality, national security and human capital developments, among others.
Making the budget work
A seasoned economist and statistician, Dr Tajudeen Adebayo, said the 2021 budget reflects twin objectives of repositioning the economy on the path of recovery, growth and resilience, following the pandemic and its negative economic consequences as well as enhancing the competitiveness of the economy through diversification and social inclusion in the polity.
He however noted that the four evident incongruities of galloping spending, weakening revenue, growing debt service and infrastructural deficit required government to be more painstaking in its budget implementation.
At a review session organised by Abeokuta Business School (ABS), Crescent University, Abeokuta, Ogun State, Adebayo, a senior faculty member at ABS, noted that revenue generation remains a challenge in the face of falling oil prices and economic contraction resulting mainly from the pandemic-induced global uncertainties.
According to him, the key concerns on the 2021 budget include the growing debt profile of Nigeria, diversifying the economy from its over-dependence on crude oil export and its price volatility, increasing revenue generation from all government ministries, departments and agencies (MDA), addressing revenue leakages in government finances, steady oil production and controlling the growing recurrent spending on payment of salaries and overheads among others.
He pointed out that there was genuine fear that the deficit financing in 2021 may further exacerbate Nigeria’s already poor debt profile, force governments into adapting policies aimed at austerity, widen inflationary gap in the economy that may adversely increase money supply as well as lead to a fall in aggregate demand, lower growth, trigger recession and unemployment.
He however noted that the government could turn its deficit into a growth lever through careful and efficient implementation. According to him, budget deficit is not always harmful, it can be beneficial to Nigeria, depending on quite a few factors. Theoretically, the Keynesian analysis holds that a budget deficit can be good for an economy in recession because private sector spending will be low, while savings will rise on the aggregate.
Empirically, financing the budget deficit can be cheaper for the government because the private sector will prefer buying government securities or bonds, which is safer than investing in the private sector with uncertainties. Invariably, this will make the cost of borrowing lower for the government to finance the deficit, as the increased patronage of government bonds by private investors ultimately, brings down the bonds’ yields. With this, the government can borrow safely from the private sector to finance the 2021 budget deficit.
“The prospect can thus be bright for Nigeria with approved spending of N4.370 trillion by the Federal Government in the current fiscal year, as that will inject more funds into the economy, and through the multiplier effect, rejuvenate the level and quality of infrastructure to improved productive capacity through increase investments and job creation, increased aggregate demand, higher economic growth, higher tax revenue to the government and consequently, dowse the deficit and market failure over time,” Adebayo said.
He identified the key factors necessary to optimise the budget potential to include accountability, corruption-free and strong commitment in revenue generation, blocking leakages of resources and eradicating waste in public expenditure.
ABS outlined a 10-point recommendation to making the budget work for optimal national growth and development.These include strengthening of the frameworks for greater transparency and accountability at all revenue collection and expenditure management points and in all processes, publishing the rules for the various licence award processes in Nigeria, intensifying efforts to make significant gains in 2021 fiscal year from those sources including its special accounts, special levies account, domestic fines, asset recoveries, stamp duty, signature bonus, and receipt from the auction of oil licenses and block all known avenues for revenue leakages in the 60 GOEs and MDAs.
Other ways to improve budget performance include increasing public private partnerships through well prepared projects involving MDAs, the Infrastructure Concession Regulatory Commission and the private sector, reduce borrowing and establishing special purpose vehicles that gather and aggregate resources from a plethora of sources including institutional and retail investors to fund priority capital projects, stoppage of subsidy payment to fully deregulate the downstream sector and drive investment to the sector and implementing service reflective electricity tariffs to help resolve liquidity crisis in the power sector while simultaneously finding solution to estimated billing and other corruption-prone practices in the sector.
The ABS also advised the government to shun the decadence of project abandonment by maintaining the culture of keeping proper stock of the national wealth by focusing more on the completion of as many ongoing projects as possible in the 2021 fiscal year, rather than the commencement of new projects without well-established necessities.
ABS also urged the government to implement the lofty objectives stated in tax policies: pushing for amendment of key tax legislations, financial reporting and other fiscal rules for companies operating in the Free Trade Zones, tax exemptions, incentives and rebates to businesses to achieve socio-economic development.
Director, Monitoring and Evaluation, Ministry of Budget and Planning, Ogun State, Mr. David Onigbinde underscored the need to institutionalise measurement and evaluation (M&E) as a primary component of budget framework and implementation.
According to him, integrating appropriate measurement and evaluation tools into the budget will enable the government to not only to improve implementation but also to improve quality and to forestall and reduce abuses.
Director, ABS, Dr Jubril Salaudeen, said the use of project-tied issuances could foster the culture of monitoring and citizen participation as non-government stakeholders could easily assess budget implementation.
According to him, a seeming “third eye” on revenue allocations and capital raising in relation to specific projects would enhance budget performance and development of the country.
The finance expert called for efforts by stakeholders in the formulation, implementation, monitoring and supervision of the national budget, noting that the yearly budget remains a major fulcrum for growth and development.
President, Abeokuta Chamber of Commerce, Industry, Mines and Agriculture (ABEOCCIMA), Sir Olujare Oyesola, decried undue politicisation of budget implementation, noting that while stated budget intentions and objectives are usually laudable, the major drawback in implementation over the years has been undue politicking that misplaces allocations and implementations at the expense of value and efficiency.
While acknowledging the constitutional responsibility of the government in the development of the entire country, Oyesola said adequate consideration must be given to value, sustainability, efficiency and viability of projects in various segments of the country. He assured that the organised private sector is willing to partner the government in the realisation of its objectives.
Coordinator, Abeokuta Business School (ABS), Dr. Muideen Isiaka, added that the government needs to accelerate implementation of key reforms to improve on revenue collection and control mismanagement in public financingS to keep apace with the developmental needs of the country.
According to him, while government deserves commendation for the apparent readiness to confront the challenges of post-COVID-19 pandemic economic recovery, there must be renewed commitment to increased revenue generation and efficient management to make more meaningful impact.
Analysts at SCM Capital said the 2021 budget projections are largely realistic, leaving the onus on the efficiency of implementation. Expected recovery in global economic activities in 2021 supports government optimism on oil receipts while government could achieve as high as 96 per cent of its non-oil revenue based on domestic economic growth. SCM Capital however noted that 2021 fiscal deficit could be as high as N6.05 trillion, 8.07 per cent higher than the budgeted N5.60 trillion. This brings home the importance of budget efficiency, monitoring, measurement and evaluation to ensure that Nigerians derive optimal value, even as the debts grow.
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