The Illusion And Reality Of FG’s 2020 Budget


The 2020 appropriation and finance bills of the Federal Government (FG) were presented to the National Assembly by President Muhammadu Buhari last week, CHIMA NWOKOJI in this report dissects the policy document through lens of economic and finance experts.


Nigerians are happy with the quick submission of the bill to the legislators because it should give ample time for deliberations and hasten final approval, especially as the current leadership of the National Assembly is supportive.

Also, many people are slightly comforted by the finance bill which proposes the increase in Value Added Tax (VAT) rate from 5.0per cent to 7.5 per cent as well as business friendly tax reforms. Although, the president called it job creation budget, most analysts see it as budget of taxation because the bulk of the budgeted revenue is expected to come from the VAT.

However, most economic and finance experts have criticised the estimates based on a lot of unrealistic assumptions.

The budget is underpinned by four pillars including fiscal consolidation, infrastructure & human capital development, incentivising the private sector and enhancing social investment programmes. These goals seem laudable at first glance, but experts are worried by the small sizes of budget allocations which they said suggest a shaky foundation that could affect progress. Their conclusion is that the budget needs re-visiting but not padding.”

To put this in context, the Chief Economist at a global investment consultancy and advisory services firm, PriceWaterHouseCoopers (PWC), Dr. Andrew S. Nevin while discussing the Budget presentation on Channels TV said that Nigeria which was growing at an average of 6 per cent in the 1990s and early 2000, needs to grow at 6-8 per cent, and that this requires private & public sector investment of N40 trillion a year. The 2020 budget estimates is N10.33 trillion.

In this context, the economist says, “We continue to get poorer and poorer as our growth is lower than population growth; with population growth of 2.7 per cent per annum, even if we grow GDP at 2.5 per cent at 2019, we are getting poorer and poorer. And even if we grew at 3.5 per cent per year, it would take about 100 years to double GDP per capita.”

The International Monetary Fund (IMF) did not differ from this idea when recently, it warned that Nigeria could face up to eight years of getting poorer and poorer – 2015-2022 – unless something different is done.


Test of countercyclical Economic theory

There is a school of economic thought founded by the United Kingdom economist John Maynard Keynes (1883-1946) and developed by his followers. Keynesian economics prescribes countercyclical spending as an orthodox stimulant for slowing economies as Nigeria’s. A ‘countercyclical’ fiscal policy is the idea that government should reduce spending and increase taxes during a boom period (Nigeria is not in boom period); increase spending and cut taxes during a recession or a period of high inflation and slow GDP growth (inflation is still in double digits and GDP growth is very slow).

The 2020 budget is theoretically in deficit but could be a balanced budget, if the Excess Crude Account (ECA) accruals are backed out. The budget deficit is projected at N2.2 trillion.

Keynesian economists would recommend that Nigeria should embark on deficit spending (allocate more money) on labour-intensive infrastructure projects in order to stimulate employment and stabilise wages in this period of economic downturn.

Managing Director, Financial Derivatives Company Limited Mr. Bismarck Rewane observed in the company’s monthly economic bulletin that in the last 3years, Federal Government of Nigeria (FGN) budgetary expenditure has been growing at an average of 12.7 per cent compared to the average inflation rate of 13.57 per cent.

“This means that after adjusting for inflation, Nigerian budgets have actually declined. If you go further to adjust for exchange rate depreciation, the decline gets more troubling. In effect, the budget expenditure in 2020 is approximately 5.78 per cent lower than the actual budget in 2016,” he said, agreeing with Dr. Nevin that Nigeria is not spending enough during this economic downturn.

It means that the N2.5 trillion or 24.3 per cent allocations to capital spending cannot provide the boost needed in infrastructure.

This explains why for example, pursuant to a motion moved by Babajimi Benson (APC, Lagos), the House of Representatives  called for more funding for the education sector in the 2020 budget, a prayer the House adopted.

The House also urged the federal government to increase the annual budgetary allocation to the health sector from 5 per cent to 15 per cent as had been pledged by successive governments in order to curb unnecessary deaths caused by the failing health system.

The call followed a motion entitled: Deplorable State of Government Owned Healthcare Facilities in Nigeria, sponsored by Mr. Ntufam Mbora (PDP, Cross River) during plenary on Wednesday.

Mr. Mbora noted that the health sector is in shambles as hospitals have been reduced to mere consulting clinics without drugs, water and health equipment does not function optimally. According to him, the decay in the nation’s health sector calls for a re-evaluation of the annual budgetary allocation to the sector, which is barely sufficient for adequate provision of medical facilities and maintenance. This call can be replicated in other sectors.


Doubtful Revenue Expectations

A herd of experts have also raised their eyebrows over some of the expectations about revenue.

They are worried that 2020 budget ignores lessons from the recent difficulties the FG encountered as regards budget performance.

For context, the Chief Executive Officer, Afrinvest (West) Africa Limited Mr. Ike Chioke said FG’s revenue projections underperformed actual collection by 47.8 per cent in 2017 and was little changed at 44.7 per cent in 2018 and 41.6 per cent as at first half (H1) :2019.

Available records show that the FG projected revenues of N8.2 trillion in 2020, is 17.1 per cent higher than N7.0 tillion in 2019 and more than twice the actual collection of N4.0 trillion in 2018.

Oil revenue projection was lowered 29.7 per cent to N2.6 trillion (vs. 2019: N3.7 trillion), reflecting prudent adjustments in the wake of lower for longer oil prices and weak oil production due to the slow pace of oil and gas reforms.

Specifically, crude oil price and production assumptions were revised downward to $57.0/bbl. and 2.18mbpd (vs. 2019: $60.0/bbl. and 2.3mbpd) respectively.

According to Chioke and his team of experts at Afrinvest, Oil revenue would be higher if the exchange rate assumption of N305.00/$1.00 is adjusted to the market rate of $365.00/$1.00.

On the other hand, non-oil revenue projections (customs & excise duties, VAT and CIT) increased by 28.6 per cent to N1.8 trillion (vs. 2019: N1.4 trillion) showing a marked 94.7 per cent surge in independent and other revenues budgeted at N3.7 trillion (vs. 2019: N1.9 trillion).

“Although the recent trend in core non-oil revenue has been positive, the projected increase is steep and unlikely to be achieved. The projections for non-core, non-oil revenues such as independent revenue, asset sales, recovery and fines, which have historically underperformed, are ambitious,” the according to the team from Afrinvest.

In its weekly review, the firm observed that looking at 2017, 2018 and H1:2019 budget performance, total collection from the non-core, non-oil revenue lines was zero “if we exclude independent revenue. We believe these unrealistic assumptions set up the budget for poor implementation.”

On Tax, Chioke and his team said the expected improvement from VAT revenue would be poorer than initially anticipated given the much overdue VAT reforms now proposed.

The FG is planning to raise the VAT registration threshold to N25.0million in annual revenue while the exemption list has been expanded to cover more food items.

Although the FG has once again revealed its plans to collect more revenues, this is likely to take time given that growth remains weak.

“We reiterate that the removal of petrol subsidies is key to boosting government revenues in the immediate term,” Afrinvest insists.

Agreeing with the position of Chioke and his team of economic and finance experts, BudgIT says it is doubtful of the federal government’s (FG) ability to realise its projected total revenue of N8.15 trillion. BudgIT is a civic organisation that holds government to public accountability and applies technology to intersect citizen engagement with institutional improvement, to facilitate societal change. In the 2020 Budget, oil revenue is projected at N2.64 trillion, non-oil tax revenue at N1.81 trillion and other revenues at N3.7 trillion.

“This revenue performance is only 58 percent of the 2019 Budget’s target due to the underperformance of both oil and non-oil revenue sources. Specifically, oil revenues were below target by 49 percent as at June 2019. “This reflects the lower-than-projected oil production, deductions for cost under-recovery on supply of premium motor spirit (PMS), as well as higher expenditures on pipeline security/maintenance and Frontier exploration,” the president stated in his budget speech.

The organisation observed that since total revenue earned by the FG as at June 2019, was N2.04 trillion, the  total revenue projection for 2020 should have reasonably be put at N4.08 trillion because there is nothing extra ordinary that the government can possibly do to geometrically multiply revenue to the tune of N8.15 trillion. Not even the VAT increments. Other analysts are equally concerned that fiscal revenues are likely to be impeded by declining oil prices. Revenue shortfalls have plagued the efficiency of Nigerian budgets as an efficient tool of economic management.

With increasing volatility in the oil markets, oil prices are projected to decline further. Three top oil traders Vitol, Trafigura and Grunvor are projecting a further decline in oil prices below the $57per barrel. Therefore, there is general opinion that Nigeria could fall short of the projected revenue of N8.16 trillion. This creates a quandary as the government seeks to stimulate the economy while hoping to maintain a low debt service payout ratio.


Dissecting planned Expenditure

The planned spending of the FG at N10.3 trillion for 2020 represents a 13.2 per cent increase from the previous year’s N9.1 tillion (without adjusting for inflation).

The team from Afrinvest, a Lagos-based research and investment consultancy firm sees the N10 trillion as too high when considering FG’s recent revenue woes (reliance on borrowing) which is likely to persist.

But in the broader context, and in line with Nevin’s argument of increased spending, the proposed expenditure is neither large enough nor supportive of the country’s growth aspirations at 6.7 per cent of GDP.

Nigeria’s gross expenditure to GDP which is estimated at 12.2 per cent compares poorly with peer economies such as South Africa (33.6 per cent), Egypt (29.9 per cent), Kenya (25.4 per cent) and Ghana (23.6 per cent).

Similarly, instead of capital and labour intensive projects, the non-debt recurrent expenditure according to experts is high at N3.6 trillion or 35.0 per cent of the budget, considering FG’s fiscal consolidation plans. The rise in fiscal spending in Nigeria should be channeled to productive investment projects instead of recurrent expenditure, if the government hopes to realise its aim of a 2.93 per cent GDP, says a team of Economic analysts from Financial Derivatives Company.

The budgetary allocation for capital expenditure (CAPEX) in the 2020 budget is 31.76 per cent lower than the N3.18 trillion CAPEX allocations in the previous budget.

Meanwhile recurrent expenditure recorded a 10.25 per cent boost to N4.84 trillion from N4.39 trillion. About 21 per cent of the budget (N2.14 trillion) was allocated to capital projects, while 46.85 per cent was allotted for recurrent expenditure.

Some experts attribute the increase in recurrent expenditure, partly to the non-discretionary minimum wage increase.

Another worrisome aspect of Nigeria’s financial management is the size of debt servicing cost at N2.45 trillion or 23.8 per cent of the budget. Stakeholders say this would continue to be a drag to human capital and infrastructure spending.

Also, the N2.5trillion capital allocation falls short of the 30.0 per cent target stipulated in the Economic Recovery and Growth Plan (ERGP).

“We also expect debt service to revenues to be elevated at 53.3 per cent compared with the budgeted 29.9 per cent. In addition to borrowing to cover the shortfall in revenues, we expect increased financing of FG’s operations by the CBN,” the experts noted.

Corroborating the above observations, a development Economist Mr Odilim Enwegbara is not happy with the figures thrown up in the budget. According to him, the figures are not what Nigeria should have at this level of economic journey.

He asks, “How can you allow debt to accumulate to N30 trillion and you don’t have ways to reduce or settle it?”

Nigeria’s debt service to revenue ratio is about 80 per cent, and in some countries, when it is 30 per cent, they declare economic crisis. To those who argue that debt to GDP ratio is still low compared to other countries, he not only want them to compare Nigeria’s  revenue to GDP with such countries, but also to check whether such countries borrow to invest or borrow for consumption like Nigeria.

“Why should we be drowning and at the same time celebrating? I think there is something wrong with this country called Nigeria, “Enwegbara lamented.



To achieve the desired growth, the development economist suggested that government should carefully create an enabling environment for foreign direct investment. That way Enwegbara stated, Nigeria will become an investment destination for infrastructure to investors from all over the world.

He said this is the only way at this moment, to solve the infrastructure deficit which according to him, is so wide that it can’t be bridged by throwing N2 trillion into it every year.

Enwegbara gave example with road infrastructure. According to him, through Tax Credit, Public Private Partnership (PPP), or build-operate-and-transfer model for 30 years roads can be constructed. When every 100 kilometers on such roads are tolled, sufficient revenue will be generated.



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