…proposes 7.5% VAT from 5%, Real GDP growth of 2.93%
…as mixed reaction trail N2.45trn debt service, VAT increase, others
By Kayode Tokede and Olabode Jegede
President Muhammadu Buhari on Tuesday presented ‘Budget of Sustaining Growth and Job Creation’ estimated at N10.33 trillion for the year 2020 to a joint session of the National Assembly.
According to him, the sum of N8.155 trillion is estimated as the total Federal Government (FG) revenue in 2020 and comprises oil revenue N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion.
He noted that the 2020 budget is seven per cent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.
Speaking on planned 2020 expenditure, he said, “An aggregate expenditure of N10.33 trillion is proposed for the Federal Government in 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 is estimated at N2.45 trillion, and provision for Sinking Fund to retire maturing bonds issued to local contractors is N296 billion.
He added that Nigeria as a country remains committed to meeting its debt service obligations.
He said, “Of the N2.45 trillion, 71 percent is to service domestic debt which accounts for about 68 per cent of the total debt. The sum of N296 billion is provided for the Sinking Fund to retire maturing bonds issued to local contractors.
“I am confident that our aggressive and re-energised revenue drive will maintain debt-revenue ratio at acceptable and manageable levels. We will also continue to be innovative in our borrowings by using instruments such as Sukuk, Green Bonds and Diaspora Bonds.”
He explained that the increasing share of non-oil revenues underscores confidence in FG’s revenue diversification strategies.
According to him, given the FG efforts to enhance transparency and accountability, there is need to continue its strict implementation of Treasury Single Account (TSA) to capture the domiciliary accounts in foreign missions and those linked to Government Owned Enterprises.
n his presentation, President Buhari said the sum of N125 billion was budgeted for the National Assembly out of N556.7 billion provided for as statutory transfer; N110 billion for the Judiciary; N37.83 billion for the North East Development Commission (NEDC); N44.5 billion for the Basic Health Care Provision Fund (BHCPF); N111.79 billion for the Universal Basic Education Commission (UBEC); and N80.88 billion for the Niger Delta Development Commission (NDDC), which is now supervised by the Ministry of Niger Delta Affairs.
He added that the budgetary allocation to the National Human Rights Commission was raised from N1.5 billion to N2.5 billion.
This, the President noted, represents 67 per cent increase in funding to enable the Commission performs its functions more effectively.
On recurrent expenditure, President Buhari gave non-debt recurrent expenditure as N3.6 trillion for personnel and pension costs, an increase of N620.28 billion over 2019.
According to him, “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.
“Our fiscal reforms shall introduce new performance management frameworks to regulate the cost to revenue ratios for Government Owned Enterprises, which shall come under significant scrutiny. We will reward exceptional revenue and cost management performance, while severe consequences will attend failures to achieve agreed revenue targets.
“We shall also sustain our efforts in managing personnel costs. Accordingly, I have directed the stoppage of the salary of any Federal Government staff that is not captured on the Integrated Payroll and Personnel Information System (IPPIS) platform by the end of October 2019. All agencies must obtain the necessary approvals before embarking on any fresh recruitment and any contraventions of these directives shall attract severe sanctions.
“Overhead costs are projected at N426.6 billion in 2020. Additional provisions were made only for the newly created Ministries. I am confident that the benefits of these new Ministries as it relates to efficient and effective service delivery to our citizens significantly outweighs their budgeted costs..”
He disclosed that the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) set out the parameters for the 2020 Budget.
“We have adopted a conservative oil price benchmark of $57 per barrel, daily oil production estimate of 2.18 mbpd and an exchange rate of N305 per US Dollar for 2020.
“We expect enhanced real GDP growth of 2.93per cent in 2020, driven largely by non-oil output, as economic diversification accelerates, and the enabling business environment improves. However, inflation is expected to remain slightly above single digits in 2020,” he added.
President Buhari said a draft Finance Bill, which accompanied the 2020 budget, proposes an increase of the VAT rate from five per cent to 7.5per cent.
According to him, the 2020 Appropriation Bill is based on the new VAT rate with additional revenues used to fund health, education and infrastructure programmes.
He, however, said that States and Local Governments were allocated 85per cent of all VAT revenues.
Some of the key capital spending allocations in the 2020 Budget include: 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 and Agriculture and Rural Development: N83 billion.
Others 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.
He explained that “government’s actual spending has reduced, our plans to leverage private sector funding through our tax credit schemes will ensure our capital programmes are sustained.”
On budget deficit, Buhari projected 2020 deficit to be N2.18 trillion, stressing that the deficit is drawdowns on project-tied loans and the related capital expenditure.
According to his presentation, “This represents 1.52 per cent of estimated GDP, well below the three per cent threshold set by the Fiscal Responsibility Act of 2007, and in line with the ERGP target of 1.96 per cent.
“The deficit will be financed by new foreign and domestic borrowings, Privatization Proceeds, signature bonuses and drawdowns on the loans secured for specific development projects.”
Reacting, the Managing Director, Enterprise Stockbrokers Limited, Mr. Rotimi Fakayejo said, 7.5 per cent VAT from five per cent is unfortunate.
According to him, “it shows that the government is insensitive to the plight of the masses because the advocacy everybody has been raising is that those who earn more should pay more but if it is now an equitable distribution, definitely, consumption of goods is expected to drop.
“So, ultimately, what we think we are gaining by the extra 2.5 per cent, we will lose it in lower consumption. Also, I look at the budget again and I realized that the government is spending their budget, an appropriative N2.45 trillion for debt servicing.
“It goes a long way as well that there is still going to be borrowing this year for the financing of the budget which implies that by next year, the debt servicing appropriation will also be higher.
I think there is a whole lot that they need to do. Whatever FG would have done is to do their calculation well in order to reduce borrowing to finance projects or even not to borrow at all so at least until we get out of the debt trap.”
A financial consultant at Quest Advisory Bayo Rotimi disagreed with the national assembly in jacking up the budget by about N700billion.
Rotimi said “National assembly are just optimistic in large budget outlook and the budget has been put under the pressure to perform at all means.
“They would have left the budget as proposed, if it performs beyond that, then it’s fine,” he said.
He added that the increased budget benchmark from $55 per barrel to $57 per barrel was unnecessary.
He said oil prices shock cannot be overemphasized, which is why the benchmark proposed by the executive.
He also said for the budget to perform optimally, revenue collection mechanisms for the Nigeria Customs Service and the Federal Inland Revenue Service (FIRS) must be enhanced as dependency on oil revenue is now a thing of the past.