PRESIDENT Muhammadu Buhari recently presented to the joint session of the National Assembly an aggregate expenditure of N13.08trillion Appropriation Bill for 2021. Giving the highlights of the “Budget of Economic Recovery and Resilience,” the President explained that N3.85trillion or 29.43 per cent was voted for capital projects, while personnel costs (including salaries and allowances) would gulp N3.76trillion or 28.75 per cent. Also, N3.12trillion or 23.85 per cent is earmarked for debt servicing. Put together, debt servicing and personnel costs will gulp N6.88trillion or 52.60 per cent of the budget, while statutory transfers will take N484.4billion, and N220billion for Sinking Fund, which will be used to retire some maturing bonds.
In addition, the president stated that N5.20trilion or 40 per cent of the proposed expenditures will be funded by new borrowings, privatisation proceeds and drawdowns on multilateral/bilateral loans secured for specific projects and programmes. The N13.08trillion estimates is premised on the following parameters: oil benchmark of $40 per barrel, 1.86 million barrels of oil production per day, inclusive of condensate of 300,000 to 400,000 barrel per day, exchange rate of N379 per US dollar, a Gross Domestic Product (GDP) growth of 3.0 per cent, and inflation rate of 11.95 per cent.
While acknowledging that the economy is currently facing serious challenges and could slide into a second recession in four years, President Buhari defended the assumptions of the budget and the funding plan to actualise its objectives. He stated that the total revenue available to fund the budget is estimated at N7.886trn. That, according to him, includes grants and aids totaling N354.85billion, as well as revenues from 60 government-owned enterprises. Projected oil revenue is put at N2trillion, and non-oil at N1.49trillion. A breakdown of some sectoral allocations shows that Works and Housing got the lion’s share with N404billion, Transportation, N256billion, Power N198billion, Defence N121billion, Agriculture and Rural Development N110billion, Water Resources N153billion, Health N132billion, and Education N127billion. For the first time in many years, the health and education sectors got over 60 per cent increase in their allocations.
It is heartening that the National Assembly has assured a speedy passage of the budget, an indication that government is committed to sustaining the January to December budget cycle. This is good for planning in the public and private sectors of the economy. However, we have some reservations about some of the parameters used for the budget estimates. Some of the assumptions appear unrealistic as some economic experts have observed. For instance, inflation rate of 11.95 per cent does not seem realistic. The inflation rate for the month of September released last week by the National Bureau of Statistics was 13.7 per cent, the highest in 30 months.
In the last two years, headline inflation had remained on the upswing, and it is likely to remain so at least till the first quarter of 2021. Similarly, the N379/$ exchange rate appears too ambitious, especially with the scarcity of the dollar in the forex (FX) market that has pushed up the exchange rate to over N470 in the parallel market.
The Central Bank of Nigeria (CBN) will have to walk a tightrope of managing the FX market that is already beset by infractions and pressure from multilateral institutions for a harmonisation of the exchange rates in the economy. The N3.12trillion earmarked for debt servicing is not likely to be sustainable. Also, the projected Gross Domestic Product (GDP) growth of three per cent may be unrealistic to attain because the economy had already contracted 6.1 per cent in the Q2,2020. There are fears that this year may end with the economy in the negative territory. The President admitted this much in his budget presentation.
In the same vein, the projected deficit of N5.20trillion in the 2021 budget, representing 3.64 per cent of the GDP, which is above the three per cent threshold recommended by the Fiscal Responsibility Act 2007, does not look good. Even the production benchmark of 1.86mbpd is also not in line with the international market reality. For example, in August 2020, Nigeria’s production quota was 1.3 million barrels per day. It was reviewed upward to 1.4 million in September.
We believe that proper attention was not paid to key fundamentals of the budget assumptions. This is why many Nigerians are pessimistic about the budget delivering on its objectives and targets. It is anticipated that poor implementation, lack of commitment and inadequate revenue may hamper the budget. There is need to go beyond the hollow annual ritual of budget presentation to effective implementation. For years, the federal budget has not achieved more than 50 per cent implementation. Therefore, for the 2021 Appropriation bill to achieve its broad objectives, early passage by the legislature and assent by the President are crucial.
The government should show more commitment to the full implementation of the budget. In addition, it is necessary to reduce the cost of governance, especially the emoluments of political office holders and other areas that have little significance to national development. There is need to drastically reduce the humongous amounts voted for the renovation of the National Assembly and the servicing of the presidential fleet. Let the ministries, departments and agencies (MDAs) scale up the process of revenue generation.