Analysis of Nigerian 2020 Budget Proposal – PanAfrican Capital Holdings

The economic growth rate of the nation remains lackluster since the country exited recession in the second quarter of 2017, also the slow growth continues in the year 2019 with real growth rate of 1.94% in the second quarter of the year.

This was consequent to the reliance on crude oil receipts for the greater proportion of the nation’s revenue and foreign exchange earnings.

However, with the drop in the prices of crude oil, the fiscal position of the nation was adversely affected which led to the era of slow growth.

Furthermore, GDP growth rate of 2.3% was projected for the country by the IMF which is lower that the population growth rate of around 3.0%.

Review of the 2019 Budget

The sum of N10.068 trillion was approved by the National Assembly as total budgeted expenditure for 2019.

The implementation of the 2019 Appropriation Act started in July due to the delay in the passage of the budget proposal.

As at the end of June, Federal Government’s actual revenue was N2.043 trillion, representing performance level of 29.2% against the annual budgeted revenue of N6.668 trillion.

Further analysis revealed that oil revenue recorded performance level of 24.4%, i.e. comparing the budgeted figure of N3.688 trillion against the actual oil revenue of N900 billion as at the end of June.

Also, non-oil revenue recorded actual revenue of N614 billion, i.e. 43.6% performance level when compared with the budgeted sum of N1.409 trillion.

Similarly, other revenue recorded performance level of 28.4% which is N528 billion against the budgeted figure of N1.859 trillion in the period.

Further breakdown of the non-oil revenue revealed that VAT recorded revenue of N81 billion against the annual budget figure of N229 billion.

Also, Company Income Tax (CIT) recorded actual revenue of N349 billion for the period out of the annual budgeted revenue of N813 billion.

On the other hand, Customs’ actual revenue of N173 billion was 55.6% performance compared with the annual budgeted figure of N310 billion.

The performance of the recurrent expenditure was 50.0%, i.e. N3.160 trillion while capital expenditure was zero due to the delay in the passage of the budget proposal.

However, a sum of N295 billion had been released for various capital projects as at the end of September 2019, and there was presidential directive that additional sum of N600 billion be released for capital projects before the end of the year.

Further breakdown of the recurrent expenditure showed that personnel cost recorded performance level of 49.1%; that is, actual personnel cost of N1.123 trillion compared with annual budgeted sum of N2.289 trillion.

Also, debt service recorded actual amount of N1.109 trillion, which is a performance level of 49.2% relative to the annual budgeted amount of N2.254 trillion as at the end of June 2019.

And a sum of N230 billion was recorded as statutory transfer in the period, i.e. performance level of 45.8% against the annual budgeted amount of N502 billion.

In summary, out of the total budgeted expenditure of N10.068 trillion a sum of N3.390 trillion had been spent as the end of June 2019, this translated to 33.7% performance level.

On the pro-rata basis, the performance of the total expenditure stands at 64.3% relative to the pro-rata budgeted expenditure of N5.034 trillion for the first half of the year.

In addition, real GDP growth rate of 2.0% was achieved as at June 2019 relative to the projected rate of 3.0% for the year. Moreover, oil production stood at an average of 1.86 mbpd against the budgeted volume of 2.30 mbpd.

Highlights of the 2020 Appropriation Bill President Muhammadu Buhari of Nigeria presented the 2020 budget proposal of N10.330 trillion to the joint session of the National Assembly recently.

Non-debt recurrent expenditure includes a sum of N620 billion which was a provision for the new minimum wage and a proposal to improve the welfare of the Nigerian Police and members of the Armed Forces.

Government plans to reduce dependency on oil receipts in financing the 2020 budget due to the volatility in the prices of crude oil in the global market.

Therefore, oil revenue is projected at N2.637 trillion which accounts for 34.7% of the total budgeted revenue of N7.602 trillion.

On the other hand, the non-oil revenue (Corporate Income Tax, VAT and Customs & Excise Duties,) was estimated at N1.805 trillion, i.e. 23.7% of the total estimated revenue.

In addition, “Other revenue” line which was estimated at N3.160 trillion represented 41.6% of the total revenue.

Moreover, company income tax (CIT) is projected at N839 billion, representing 46.5% of the total non-oil revenue.

Also, projected VAT revenue of N293 billion represents 16.2% of the non-oil revenue and it increased by 27.9% compared with the budgeted amount of N229 billion in 2019.

Budgeted revenue from Customs & Excise Duties increased by 99.0% to N619 billion compared with the N311 billion budgeted for 2019 and it accounts for 34.3% of the total non-oil revenue.

The increase in the projected VAT revenue for the 2020 relative to the previous year was based on the proposition to increase the VAT rate to 7.5% from the current level of 5.0%, and the determination of the policymakers to bring more operators into the tax net

Read: https://dmarketforces.com/nigeria-has-room-for-more-public-debt-fsdh-research-insists/

Expenditure: The aggregate expenditure was planned to increase by 2.6% in 2020 to N10.330 trillion compared with the N10.068 trillion approved expenditure budget for the previous year.

Moreover, re-current expenditure (non-debt) increased by 11.3% to N4.880 trillion compared with the N4.386 trillion in 2019.

This includes the estimates for the effect of the recent increase in the new minimum wage. On the other hand, budgeted capital expenditure was reduced by 26.7% to N2.145 trillion relative to the sum of N2.927 trillion in the 2019 approved budget.

The top recurrent expenditure heads are Defence N778 billion, Education N602 billion, Health N381 billion and Interior N219 billion.

The top major capital expenditure heads are; Works and Housing N259 billion, Power N127 billion, Transportation N123 billion, Defence N100 billion and Agriculture N80 billion.

In addition, statutory transfer increased by 10.9% to N557 billion compared with the N502 billion in the preceding year and the budget for debt service moved up by 14.4% to N2.453 trillion.

In order to fund the 2020 proposed budget deficit of N2.175 trillion, domestic and foreign borrowings was estimated at N803 billion each.