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As mixed reactions trail the presentation of the 2020 national budget, what is worrisome is not the actual figures allocated to the various sectors of the economy, but it is the inability of the government to execute its annual budget above 50% and the impact of the budget on the wellbeing of Nigerians. The execution of the 2020 budget, with such huge recurrent expenditure and the unprecedented N2.45 trillion earmarked for debt servicing, will certainly not be different
By Anayo Ezugwu
DESPITE the recent outcry by Nigerians over the proposed increase in Value Added Tax, VAT, from five percent to 7.5 percent, the federal government is going ahead with the new VAT rate. While presenting the N10.33 trillion 2020 budget to the National Assembly on Tuesday, October 8, President Muhammadu Buhari said the budget proposal was based on the new VAT rate.
He promised that the additional revenue to be generated from the higher rate would be deployed in the health and education sectors as well as infrastructural developments. He said the proposals also raised the threshold for VAT registration to N25 million in turnovers per annum, such that the revenue authorities can focus their compliance efforts on larger businesses thereby bringing relief for Micro, Small and Medium-size businesses.
“As the states and local governments are allocated 85 percent of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well. The VAT Act already exempts pharmaceuticals, educational items, and basic commodities, which exemptions we are expanding under the Finance Bill, 2019.
“Specifically, Section 46 of the Finance Bill, 2019 expands the exempt items to include the following: brown and white bread; cereals, including maize, rice, wheat, millet, barley and sorghum; fish of all kinds; flour and starch meals; fruits, nuts, pulses and vegetables of various kinds; roots such as yam, cocoyam, sweet and Irish potatoes. Other exempted items as meat and poultry products, eggs, milk, salt and herbs of various kinds, natural water and table water,” he said.
But experts have expressed concern over the government’s decision to base the estimated revenue from VAT on the new rate. They said the government had acted prematurely in using 7.5 percent instead of five percent in preparing the 2020 budget.
Apart from revenues from VAT increase, the 2020 budget proposals also showed that federal government is projecting N8.155 trillion as total revenue for the year. This projection comprises N2.64 trillion oil revenues, N1.81 trillion, non-oil tax revenues and other revenues of N3.7 trillion.
When compared with 2019 budget, this N8.155 trillion revenue projection is seven percent higher than the 2019 estimate of N7.594 trillion. Further breakdown of budget indicated that non-debt recurrent expenditure include N3.6 trillion for personnel and pension costs, an increase of N620.28 over the 2019 fiscal year figure. This increase, Buhari said reflects the new minimum wage as well as proposals to improve remuneration and welfare of police and armed forces.
The 2020 appropriation bill also showed that N2.46 trillion was earmarked for capital projects, inclusive of N318.06 billion in statutory transfers. Other estimates are N556.7 billion for statutory transfers; N2.45 trillion for debt servicing and provision of N296 billion as sinking fund.
The 2020 budget is based on an oil production estimate of 2.18 million barrels per day, oil price benchmark of $57 per barrel and an exchange rate of N305 to a dollar. Other benchmarks are: real Gross Domestic Product, GDP, growth rate of 2.93 percent, while inflation rate is expected to remain slightly above single digits in the year under review.
On sectoral allocations, ministry of works and housing would get N262 billion; power N127 billion; transportation N123 billion; Universal Basic Education Commission N112 billion; defence N100 billion; zonal intervention projects N100 billion; and agriculture and rural development N83 billion. Other ministries are 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.
The president during his presentation said the 2020 budget was designed as a budget of fiscal consolidation to strengthen the macroeconomic environment; investing in critical infrastructure, human capital development and enabling institutions, especially in key job-creating sectors; incentivising private sector investment essential to complement the Government’s development plans, policies and programmes; and enhancing social investment programmes to further deepen their impact on those marginalised and most vulnerable Nigerians.
But economic and financial experts are worried why the government would be planning to generate the sum of N8.9 trillion in 2020 when the previous budgets recorded revenue underperformance. They expressed reservations in the ability of the budget to tackle the nation’s socio-economic problems, saying that with the revenue challenges facing the country, it might be difficult to fully implement the budget.
Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry, LCCI, described the exchange rate assumption of N305 to the dollar as unrealistic. He said it was difficult to justify this assumption, especially when the country’s earnings were declining.
“The key assumptions underpinning the budget are realistic except for the exchange rate assumption of N305 to the dollar. This is one assumption that is difficult to justify, especially at a time when declining revenue has become a major issue both for the government and the citizens,” he said.
According to Yusuf, from the total budget size of N10.33 trillion having a recurrent component of N4.88 trillion and debt service of N2.45 trillion, there was not much left for infrastructure development. “Debt service commitment and recurrent spending are beginning to crowd out capital expenditure. This scenario is not in alignment with the aspiration to build infrastructure and a competitive economy. Debt service of N2.46tn is more than the capital budget of N2.14tn.”
Likewise, Taiwo Oyedele, head of Tax and Regulatory Services at PricewaterhouseCoopers, PwC, said the projected growth was weak and that revenue would be a challenge due to the rising debt burden. “The introduction of a Finance Bill to amend various tax laws is a positive development to make the tax system dynamic and responsive to changes in the economy.
“The projected growth continues to be fragile while revenue remains a challenge with rising debt although the benchmark crude oil price and production are more realistic than in previous years.”
Austin Nweze, economist and lecturer, Pan Atlantic University, Lagos, said the budget will not induce much development considering that the recurrent expenditure was 50 percent more than the capital. “We are still the way we are. There won’t be any improvement.
“What develops a nation is the ratio of capital to recurrent and with high debt profile, you can’t undertake any project because you have to service your debt before thinking of any other project,” he said.
Nweze said the growth in infrastructure was not reflective of the high debt profile, adding that only reduction in the debt profile could stir up meaningful development in the economy. According to him, the money borrowed was not channelled into ventures that would generate sufficient revenue to pay the debt.
Sheriffdeen Tella, Professor of Economics at the Olabisi Onabanjo University Ago-Iwoye, Ogun state, said while $57 per barrel oil price benchmark was right, the oil production output of 2.18 million barrel per day was not feasible. “The benchmark price for crude oil sales is okay, but the output of 2.18 million barrels per day may not be okay in the sense that we were doing 1.9mbpd. We cannot be talking of doing 2.18mbpd production at this time. The price benchmark is conservative because there is going to be glut in the oil market in 2020 and that would create problem in terms of pricing,” he said.
On expenditure, Tella said N48 billion allocated to education and N46 billion for health sector was very low.
Despite criticisms, some other experts described the budget as the right step in the right direction. They said that the budget would bring about positive development on the economy. Uche Olowu, president, Chartered Institute of Bankers of Nigeria, said the conservative oil price benchmark of $57 per barrel was realistic.
While commenting on the new VAT rate increased from five to 7.5 percent, he said, “Increasing VAT is imperative. But I would have appreciated that the tax net should be widened.”
Samuel Nzekwe, former president, Association of National Accountants of Nigeria, ANAN, said early presentation of the budget was a welcome development that could boost economic activities in the country. “If the annual budget is signed early, it will make the country to go back to January-December cycle, which would have positively impacted on the economy by making funds available to contractors. People selling items of capital nature will start selling, which make the economy vibrant,” he said.
Nzekwe advised Ministries, Department and Agencies to be available to defend their budget so as to ensure early passage of the budget. He further said that the early presentation of the budget would make the nation to effectively measure its performance.
He commended the National Assembly for approving the Medium Term Expenditure Framework for 2020 to 2022 on October 3.
As the debate on how the federal government would finance the 2020 budget continues, majority of Nigerians desire meaningful development and robust economy come 2020.
– Oct 11, 2019 @ 18:25 GMT |
Tags: 2020 Budget: How realistic is the proposed N10.33trn
