Budget 2020: A Game Changer for the Economy?

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PRESIDENT MUHAMMADU BUHARI PRESENTS HIS 2020 NATIONAL BUDGET TO A JOINT SESSION OF THE NATIONAL ASSEMBLY. PHOTO; SUNDAY AGHAEZE

The timely presentation of the N10.33trillion proposed budget for the 2020 fiscal year by President Muhammadu Buhari to the joint session of the National Assembly last Tuesday, which aims at aligning the budget year to the calendar year, has been described as a step in the right direction and a landmark achievement carefully executed. Economic pundits said the agenda holds countless benefits for the economy and the people when achieved. Bamidele Famoofo reports

On Tuesday, October 8, 2019, the federal government took a decision to implement a change in how it runs its budget. The decision, which was taken by President Muhammadu Buhari was to ensure that the budget year aligns with the calendar year. According to him, achieving the feat did not come easy as he told to the joint session of the National Assembly that “I will start by asking you to pardon my voice. As you can hear, I have a cold as a result of working hard to meet your deadline!”

As announced by Buhari, next year’s budget is focused on sustaining economic growth and creating job.

Obviously, the leadership of the 9th Assembly had mounted pressure on the executive arm of government to present its proposed revenue/expenditure to it for processing before end of October, 2019.

On their part, the legislature said the templates have been designed with a firm agenda to ensure that they conclude work on the budget by November 28, 2019. The programme indicates that the National Assembly will shut down plenary from Wednesday, October 9, 2019, until the completion of the review to work in committees to interact with the relevant ministries, departments and agencies so they could make presentations of the respective budgets for discussions and approval.

A Lagos based economic analyst and Managing Consultant, BIC Consultancy Services, Dr. Boniface Chizea, in a swift reaction to the event, told THISDAY that “It will be the equivalent of a landmark achievement for this administration to align the budget year to the calendar year. This is so as no administration so far in recent memory has been able to achieve this feat which is routinely taken for granted in advanced and developed countries.”

Buhari laid before the national assembly for consideration and approval, aggregate expenditure of N10.33 trillion for the fiscal year 2020. The expenditure estimate includes statutory transfers of N556.7 billion, non-debt recurrent expenditure of N4.88 trillion and N2.14 trillion of capital expenditure (excluding the capital component of statutory transfers). Debt service was estimated at N2.45 trillion, and provision for sinking fund to retire maturing bonds issued to local contractors is N296 billion.

The budget was based on an oil price benchmark of US$57 per barrel, a daily oil production estimate of 2.18 million barrels per day (mbpd) and an exchange rate of N305 to US$1.

Besides oil, the 2020 budget revenue estimates were based, in part, on the new proposed VAT rate of 7.5 per cent from the existing 5 percent. Along with the budget proposal, a finance bill was presented to the national assembly for consideration and passage into law. The draft finance bill proposes an increase of the VAT rate from 5 per cent to 7.5 per cent.

The sum of N8.155 trillion was estimated as the total federal government revenue in 2020 and comprises oil revenues of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion.

Recurrent Expenditure

The non-debt recurrent expenditure includes N3.6 trillion for personnel and pension costs, an increase of N620.28 billion over 2019. President explained that, “This increase reflects the new minimum wage as well as our proposals to improve remuneration and welfare of our police and Armed Forces. You will all agree that good governance, inclusive growth and collective prosperity can only be sustained in an environment of peace and security. Overhead costs are projected at N426.6 billion in 2020.

Capital Expenditure

An aggregate sum of N2.46 trillion (inclusive of N318.06 billion in statutory transfers) was proposed for capital projects in 2020. At 24 per cent of aggregate projected expenditure, the 2020 provision falls significantly short of the 30 per cent target in the Economic Recovery and Growth Plan (ERGP) 2017-2020.

Some key capital spending are Works and Housing: N262 billion; Power: N127 billion; Transportation: N123 billion; Universal Basic Education Commission: N112 billion; Defence: N100 billion; Zonal Intervention Projects: N100 billion; Agriculture and Rural Development: N83 billion; Water Resources: N82 billion; Niger Delta Development Commission: N81 billion; Education: N48 billion; Health: N46 billion; Industry, Trade and Investment: N40 billion; North East Development Commission: N38 billion; Interior: N35 billion; Social Investment Programmes: N30 billion;Federal Capital Territory: N28 billion; and Niger Delta Affairs Ministry: N24 billion.

Budget Deficit

The budget deficit was projected to be N2.18 trillion in 2020, which includes draw downs on project- tied loans and the related capital expenditure. It represents 1.52 per cent of estimated GDP, well below the three percent threshold set by the Fiscal Responsibility Act of 2007, and in line with the ERGP target of 1.96 percent.

Analysts

Economic experts have commended the early presentation of the budget proposal for 2020, noting that it holds plenty benefits for the economy and Nigerians on the long run, if the plan is well executed and made sustainable.

Chizea, who said he could not recall this being the case at least since the return to democratic rule in 1999, looked forward expectantly for this to happen under this administration. “If this is achieved and sustained then President Buhari would have succeeded with leaving us a worthy legacy.”

Chizea, who observed that the relationship between the executive and the legislation could not have been better, said the benefits of the planned alignment of the budget year with the calendar year are enormous.

“In the first place, it makes budgeting in our country best practice as this is how it is done in other countries of the world,” he said.

He noted that the new plan will make it easier for economic agents both within and outside the country to be able to make their respective plans leveraging the cues as included in the budget, adding that it should also improve considerably our record of budget implementation.

“A situation whereby year in, year out, the record of the country’s achievement with implementation of particularly capital budget leaves much to be desired, is simply not acceptable. This problem is readily traceable to late approvals of the budget.”

He argued that late approval and implementation of budget explains why economic growth is lacklustre with unemployment a veritable growth industry, which makes the country to wear the unenviable tag of the poverty capital of the world.

Expressing optimism, Chizea enthused: “We must have hit the bull’s eye if we are able to pull this feat off and it is redound creditably to the greater benefit of the Nigerians.”

A former Chief Economist at Zenith Bank, Mr. Marcel Okeke, said the private sector will align with the public sector and the economy will function harmoniously and growth will happen with this new initiative.

“Besides, the nation’s economy will also align with that of the developed nations of the world.

So, there are many things we stand to benefit from this new movement. For instance, individuals plan will align with that of government and the economy. It will be good for everyone and government should be given some commendations over this if eventually they make it happen,” he said.