By Moses Obajemu
- Afrinvest calls it “building castles in the air”
- It can’t stimulate growth
- Budget makers not ambitious enough
A larger number of analysts and finance industry experts whose views business a.m. sought over the last many days since President Muhammadu Buhari presented his 2020 spending plans (otherwise known as the budget) to the joint sitting of the National Assembly, have come down hard in their dismissal of the plans as lacking in ambition and not showing a strong will and determination on the part of Nigeria’s central government to stimulate the economy and lead it on the path of growth.
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They particularly told business a.m. that some of the objectives spelt out in the budget will not be attained, describing them as sweeteners put in their without any realistic fundamentals in place to meet them.
President Buhari presented a budget proposal of N10.33 trillion to the joint session of the National Assembly, with an estimated revenue generation of N8.155 trillion. The components of the revenue are oil revenue of N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenue of N3.7 trillion.
The president said non-debt recurrent expenditure includes N3.6 trillion for personnel and pension costs, an increase of N620.28 billion over the 2019 fiscal year figure.
Analysts at Afrinvest Limited and GTI Capital Limited, described the proposed expenditure as neither broad enough nor supportive of the country’s growth aspirations at 6.7 percent of gross domestic product (GDP).
In a review titled, “FG 2020 Budget…Building castles in the air,” and made available to business a.m., analysts at Afrinvest said the budget ignores lessons from the recent dire straits of the federal government and budget performance.
In a review of past government’s revenue projections and actual collections, the analysts said revenue projections underperformed actual collections in 2017 by 47.8 percent, and was a little changed at 44.7 percent in 2018, and at 41.6 percent as at half year 2019.
They contended that the federal government’s projected revenues of N8.2 trillion in 2020 was twice the actual collection of N4 trillion in 2018.
With projected oil revenue at N2.6 trillion after it was reviewed downward as against N3.7 trillion in 2019, they said it reflected the lower oil price and weak oil production.
“The projections for non-core, non-oil revenues such as independent revenue, asset sales, recovery and fines, which have historically underperformed, are ambitious,” they said.
“The planned spending of the federal government at N10.3 trillion for 2020 represents a 13.2 percent increase from the previous N9.1 trillion. This is aggressive when we consider federal government’s recent revenue woes which are likely to continue.
“In the broader context, the proposed expenditure is neither broad enough nor supportive of the country’s growth aspirations at 6.7 percent of gross domestic product (GDP).
“Nigeria’s gross domestic product (GDP), which we estimate at 12.2 percent compares poorly with peer economies such as South Africa (33.3 percent), Egypt (29.9 percent), Kenya (25.4 percent), and Ghana (23.6 percent),” they said.
They also faulted the debt servicing cost at N2.45 trillion or 23.8 percent of the budget, saying it would continue to be a drag on human capital and infrastructural spending. They also faulted the paltry capital allocation of N2.5 trillion which is “unsupportive of the boost needed in infrastructure,” even as it falls short of the 30 percent stipulated in the Economic Recovery and Growth Plan.
On their part, the GTI analysts, in a review titled “2020 Budget of Sustaining Growth and Job Creation: How sustainable is it?”, said funding the budget would be a tough call.
“The country in the first half of 2019, according to Draft 2020-2022 MTFF Report, recorded an actual average production volume of 1.84mbpd. This is lower than the 2.18mbpd 2020 crude oil production estimate.
“Although Nigeria was granted a higher output allotment by OPEC to 1.77mbpd from 1.69mbpd following efforts by Nigeria to tweak the agreement to accommodate its oil industry expansion, this is still about 300,000bpd short of the production volume captured in the budget estimate. As such, questions have been raised as to if the oil revenue target of N2.64 trillion for 2020 will even be achievable,” they said.
Probing further into the optimistic projection for non-oil revenue and other revenues by the federal government, they noted that the federal government projected an increase of 30.2% and 49.7% in non-oil revenue and other revenue to N1.81 trillion and N3.7 trillion respectively.
“This development raised the question on where the federal government intends to generate these revenue increases without inflicting more hardship on the citizenry given that the economy [is] currently blighted by stunted growth in Agriculture, Manufacturing, and Services sector,” they said.
capital market February 24, 2020