The federal government’s non-oil revenue projections in the 2017 budget are unrealistic, when viewed in the context of past budgets, a report by the Time Economics, a research-focused firm has stated.
The Time Economics stated this in its Mid-Year Report obtained on Monday.
It pointed out that the bulk of non-oil revenue in this year’s budget was expected to come from Value Added Tax (VAT), Companies Income Tax (CIT) and Customs and Excise Duties, revenue sources which underperformed by an average of 26 per cent between 2011 and 2015.
The 2017 Appropriation Bill was signed into law on June 12th, 2017 a month after it was passed by the National Assembly, and over six months after the budget was presented to lawmakers by the President Muhammadu Buhari. The budgeted expenditure in the final version of the bill differed from that in the proposed budget by N143 billion, an increased from N7.298 trillion to N7.441 trillion.
The budget was based on a benchmark crude oil price of $44.5 per barrel, oil production of 2.2 mbpd and an average exchange rate of N305/USD. Revenue is expected to be N5.08 trillion of which N1.999 trillion will come from oil, N1.373 trillion from CIT, VAT, Customs and Excise Duties and Federation Account Levies, N807.57 billion from Independent Revenues, N565.1 billion from Recoveries and N210.9 billion from other revenue sources such as mining.
But the report stressed that in the past, the governmentâ€™s revenue projections had been quite optimistic; actual federal government revenues were an average of 17 per cent below projected revenue between 2011 and 2015.
“In 2016, total half year revenues from these sources were 54 per cent below projections. Although the government reduced its expected revenue from these sources from N1.392 trillion to N1.373 trillion, its projection is still quite unrealistic.
“These revenue sources are dependent on the performance of the economy, which is projected to grow by only one per cent from its 2016 level. Therefore, it is extremely unlikely that any increase in the actual revenues realised in 2017 â€“ even after accounting for the growth in the economy and a higher level of tax compliance â€“ will be enough to prevent substantial underperformance in non-oil revenue.”
At the end of 2015, GDP per capita was approximately $1900, using an exchange rate of N197/USD and a population of 182.2 million (World Bank). Full year GDP growth for 2016 was -1.58 per cent, and if assumed that Nigeriaâ€™s population grew by 2.5 per cent, and an exchange rate of N305/USD, GDP per capita fell to $1177. This decline in income over a single year was quite substantial but it was even worse when compared to GDP per capita in 2014 which was approximately $2200, a 47 per cent decline in just two years, the report added.
“If the economy grows by one per cent in 2017, and the exchange rate is unchanged at N305/USD, GDP per capita falls further to $1160, again assuming 2.5 per cent population growth. Given the significant reduction in income for the average Nigerian since 2014, and the high rate of population growth, GDP growth will have to be above 5% for a long time for Nigerians to have any chance of regaining their lost income,” it stated.
Most analysts and observers expect growth in the Nigerian economy to be about one per cent in 2017 based on expectations of higher oil prices and production. The major reasons for the recession in 2016 were lower oil production due to an insurgency in the Niger Delta region, the fall in global oil prices, and a low level of budget implementation by the government. Higher oil prices in 2017 on the back of an OPEC oil output cut agreement and higher oil production as the government begins to find a solution to the insurgency problem should be enough to see the economy return to growth in 2017.
However, the contraction of the economy in 2016 combined with population growth and the depreciation of the Naira means that the average Nigerianâ€™s 2017 income in Dollar terms will not return to the level of 2014 /15 any time soon, even with the anticipated one per cent growth, the report argued.