2021 Appropriation and the Road to Economic Recovery

1

BUSINESS/Economy

In this piece, James Emejo writes that beyond the timely submission of the proposed 2021 Budget to the National Assembly, resource mobilisation, discipline, transparency as well as implementation remain crucial towards achieving the much desired recovery and growth of the economy

President Muhammadu Buhari last week presented a N13.08 trillion budget proposal for the 2021 fiscal year to the joint session of the National Assembly.

Dubbed, “Budget of Economic Recovery and Resilience”, the proposal was obviously drafted to among other things prepare the country for a second recession as clearly predicted by the president.

He said: “GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with

significant adverse consequences. However, we are working assiduously to ensure a rapid recovery in 2021. We remain committed to implementing programmes to lift 100 million Nigerians out of poverty over the next 10 years.”

This is not surprising given that there had been similar predictions recently by domestic and external commentators, who continued to highlight the deteriorating economic prospects caused by the falling crude oil price amidst the socioeconomic impact of the COVID-19 pandemic in the country as well as the reality of an economy which is largely undiversified.

The Minister of State for Budget and National Planning, Prince Clem Agba, had severally raised concerns that the economy could be headed for another recession unless the Nigerian Economic Sustainability Plan (NESP) was urgently implemented to boost spending and stimulate the economy.

The possibility of yet another recession had also been amplified by the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, who had been reeling out a litany of monetary interventions to stimulate growth and possibly help the country escape a dire economic turbulence.

But going by the performance of key macroeconomic indicators including inflation, GDP, unemployment, poverty among others, it would require patriotism and strong faith to believe that the Nigerian economy will survive a second recession by December.

Nevertheless, in presenting the 2021 appropriation, Buhari said in view of the many challenges confronting the country, the government must accelerate its economic recovery process, promote social inclusion and strengthen the resilience of the economy.

Going by the fiscal assumption and parameters which the budget was based on including benchmark oil price of $40 per barrel, daily oil production estimate of 1.86 million barrels (inclusive of

Condensates of 300,000 to 400,000 barrels per day), exchange rate of N379 per $1 and GDP growth projected at 3.0 per cent and inflation closing at 11.95 per cent, the president is hopeful that the budget would “accelerate the pace of our economic recovery, promote economic diversification, enhance competitiveness and ensure social inclusion.”

Buhari had proposed an aggregate expenditure of N13.08 trillion, including N1.35 trillion spending by Government-Owned Enterprises and Grants and Aid funded expenditures of N354.85 billion.

He said the 2021 budget deficit (inclusive of Government-Owned Enterprises and project-tied loans), is projected at N5.20 trillion, representing 3.64 per cent of the estimated GDP, slightly above the three per cent threshold set by the Fiscal Responsibility Act, 2007.

He said: “It is, however, to be noted that we still face the existential challenge of coronavirus pandemic and its aftermath. I believe that this provides a justification to exceed the threshold as provided for by this law. The deficit will be financed.”

Buhari said based on the foregoing fiscal assumptions and parameters, total federally distributable revenue is estimated at N8.433 trillion in 2021; while total revenue available to fund the 2021 Federal Budget is estimated at N7.886 trillion, adding that this includes grants and aid of N354.85 billion as well as the revenues of 60 Government-Owned Enterprises.

He noted that oil revenue is projected at N2.01 trillion, while non-oil revenue is estimated at N1.49 trillion.

According to him, “As you will observe, the format of the 2021 Appropriation Bill has been modified to include budgeted revenues, no matter how small, for each MDA, to focus on internal revenue generation.

“Accordingly, I implore you to pay as much attention to the revenue side as you do to the expenditure side in the Planned 2021 Expenditure.”

The President explained that the budget deficit would be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from privatisation proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.

He stressed further that the sum of N484.49 billion provided for Statutory Transfers in the proposal represent an increase of N56.46 billion (or 13 per cent) over the revised 2020 provision.

The president said statutory transfer provisions are Niger Delta Development Commission – N63.51 billion; North East Development Commission – N29.70 billion; National Judicial Council -N110.00 billion; Universal Basic Education Commission -N70.05 billion; Independent National Electoral Commission -N40 billion; National Assembly -N128.00 billion; Public Complaints Commission -N5.20 billion; Human Rights Commission – N3 billion; and Basic Health Care Provision Fund – N35.03 billion.

He said in order to enhance national security and human capital development, a major part of the 2021 recurrent cost estimate is allocated to paying salaries and overheads in MDAs providing critical public services.

To this end, the sum of N227.02 billion was budgeted for the Ministry of Interior; N441.39 billion for the Ministry of Police Affairs; N545.10 billion for Ministry of Education; N840.56 billion for Ministry of Defence; and N380.21 billion for Ministry of Health.

The president revealed that the budget of the Ministry of Education had been increased by 65 per cent to develop the education sector.

The key capital spending allocations include Power – N198 billion (inclusive of N150 billion for the Power Sector Recovery Plan); Ministry of Works and Housing N404 billion; Ministry of Transportation -N256 billion; Defence – N121 billion; Agriculture and Rural Development -N110 billion.

Others are: “Ministry of Water Resources: N153 billion; Ministry of Industry, Trade and Investment -N51 billion; Ministry of Education – N127 billion; Universal Basic Education Commission -N70 billion; Ministry of Health- N132 billion; Zonal Intervention Projects: N100 billion; and Niger Delta Development Commission – N64 billion.”

The president stated further that personnel cost remains the largest single item of expenditure, saying the seven months to July 31, 2020, it accounted for 34 per cent of total federal government spending and is projected at 33 per cent of 2021 expenditure.

He assured that his government remained committed to meeting its debt service obligations.

“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion has been provided for foreign debt service. N220 billion is provided for transfers to the Sinking Fund to pay off maturing bonds issued to local contractors and creditors,” he said.

However, while commending the president for the timely manner of submission of the proposed 2021 budget to the National Assembly, analysts have expressed mixed opinion over the some of the parameters adopted.

They particularly praised the executive for among other things factoring the present economic reality occasioned by the COVID-19 pandemic into the drafting of the budget.

Specifically, the analysts in separate interviews with THISDAY hailed some of the fiscal parameters by which the budget was predicated.

They however, voiced their concerns over the country’s rising public debt profile and the attendant huge debt service obligations as well as an over-ambitious growth and inflation targets.

Commenting on the proposal in a chat with THISDAY, Professor of Finance and Capital Markets at Nasarawa State University, Prof. Uche Uwaleke, commended the executive for transmitting the budget proposal in good time adding that it would allow the National Assembly sufficient period to consider and pass the appropriation bill.

He said: “I think the assumptions and budget parameters are realistic except for the Exchange rate of N379 to the dollar that may not hold due to the on-going process of unifying Exchange rates across all forex windows by the CBN consistent with the IMF prescription.

Uwaleke however, expressed reservations on the growth projection for next year.

“I also think the real GDP growth rate projected at 3 per cent is a little ambitious in view of the impact of COVID-19 on the economy expected to linger till next year. This is why the recent Fitch report on Nigeria projects a GDP growth rate of 1.3 per cent for the country in 2021,” he added.

The former Imo State commissioner for finance, however, observed that the budget proposal seemed to have set the right priorities with the bulk of capital spending going to works and housing, power and transport, pointing out that for the first time in many years, the capital allocation to education and health are above that of defense.

“I must add however, that new borrowings of over N4 trillion to part finance a deficit of over N5 trillion is worrisome given the already huge amount of over N3 trillion allocated to debt servicing alone.

“COVID-19 notwithstanding, the deficit to GDP should have been kept within the 3 per cent threshold stipulated in the Fiscal Responsibility Act 2007.

“I hope the National Assembly will consider any amendment within the budget envelope of N13.08 trillion and not end up jerking up the figure.”

Also speaking to THISDAY, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, commended both the oil production and benchmark parameters.

He however, raised objection to the exchange rate parameter, adding that it was not well considered.

He said: “With regards to production, it seems to be more realistic based on output figures for the last few years. We used to budget over 2mbpd in previous budgets but never realised more than 1.7-1.8mbpd.

“I think the benchmark oil price is fair. The global economy will surely pick up after the pandemic and as such we would expect to see an increased demand for oil and subsequent increase in prices

“The exchange rate for me is not well budgeted. One year non-deliverable forward contracts for the Naira are around N500 to the dollar, whilst futures contract for the same tenor are quoted at N385.

“This is a decent indication that the N379 per USD budgeted is not realistic. Moreover given the backlog of demand for foreign investors to exit and low oil prices, the pressure on the Naira is expected to persist.”

On his part, former Director General of the Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu, however argued that the N10.13 trillion budget proposal was an invitation to “more deficit financing and more borrowing”.

He expressed concern that in spite of the country’s dwindling economy, the government’s expenditure continued to rise with an increased budget stressing that “Our debt burden is becoming unmanageable.”

Ekechukwu said: “A N13.08 trillion budget for 2021 is only invite to more deficit financing and more borrowing. So the effect is that our debt burden will increase more and more by 2021.

“This is because the effect of COVID-19 will persist till the third quarter of 2021 and institutions are not likely to recover very quickly to turnaround their growth trajectory.

“The benchmarks of $40/barrel oil price, oil output of 1.86milion barrels daily and exchange rate of N379 per Dollar are feasible but in my opinion, GDP growth of 3.0 per cent and inflation rate of 11.95 per cent are not likely to be feasible.”

On his part, an Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, believed the budget estimates were not realistic.

According to him, “The budget is over ambitious. It is not realistic that Nigeria will experience a GDP growth of 3.0 percent. I also do not see how possible it will be to attain a unified or real exchange rate of N379 per US dollar.

“With the looming recession, the high cost of electricity, poor allocation of the budget to agriculture and high cost of petroleum products Nigeria should expect a very high rate of inflation by 2021.”

Nonetheless, Buhari appealed to both chambers of the National Assembly to hasten the legislative process of budget consideration “to ensure its prompt passage to sustain the restoration of a predictable January – December fiscal year” adding, “In this regard, I have directed all Ministers and Heads of Agencies to be personally available for budget defence.”

He said: “Nigerians expect that the 2021 Budget will contain only implementable and critical projects, which when completed, will significantly address current structural challenges of the economy, improve the business environment and accelerate economic recovery.”

But except there is marked departure from the “business as usual” syndrome, and existing mechanisms strengthened to boost transparency and monitoring, double efforts on resource mobilisation and apply sanctions where there are breaches in the implementation process, the proposed 2021 appropriation when passed into law may fail to meet the expectations of Nigerians.

The history of past budgets was riddled with diversion of budgeted interventions into private pockets, a major limitation to performance and delivery.

In the time being, all eyes is on the legislature to scrutinise the estimates and pass the piece of legislation into law albeit in record time- an assurance already given to Nigerians by President of the Senate, Senator Ahmed Lawan, and Speaker of the House of Representatives, Hon. Femi Gbajabiamila.