- Of N500bn cut, N330bn is from CAPEX
- CAPEX now 27% vs. recurrent at 73%
The Nigerian government is putting the butcher’s knife through capital expenditure in its proposed spending plans for 2019, business a.m. has gathered.
Out of a N500 billion proposed cut from what it is spending this year, capital expenditure would bear the largest chunk of N330 billion.
The Buhari government, in its last spending proposal before the country heads off to elections, is being checkmated by the reality that forecasts for revenues are not being met by actual inflows and is therefore tightening up next year.
But analysts fear that the butcher’s knife is being applied in the wrong place, which they say could be worrying for the economy.
Africa’s largest economy is planning to trim its budget for 2019 to N8.6 trillion as against the N9.1 trillion approved by lawmakers for 2018.
business a.m. findings reveal that while the overall cut in the entire budget proposal is N500 billion, capital expenditure is getting a significant cut of N330 billion in 2019 to N2.8 trillion. This is against N3.13 trillion in the approved 2018 budget, meaning CAPEX would account for barely 27 percent of total expenditure, while the bulk of 73 percent will go to recurrent expenditure.
In the 2018 spending plan being implemented, the government approved a 34:66 percentage ratio for capital and recurrent expenditures, respectively.
Details of the medium term expenditure framework (MTEF) and fiscal strategy paper (FSP) 2019-2021, as presented by Udoma Udo Udoma, minister of budget and national planning, at a consultative forum in Abuja last Thursday, showed that capital expenditure will suffer successive cuts for the three-year period to N2.8 trillion, N2.1 trillion, N2.28 trillion respectively for 2019, 2020 and 2021, despite increases in total expenditure at N8.6 trillion, N8.98 trillion and N9.4 trillion during the same period.
But recurrent spending is planned to rise from N3.41 trillion in 2018 to N4.7 trillion in 2019.
However, government plans to cut down on the level of borrowing in the budget from N1.6 trillion in 2018 to N1.5 trillion, while the deficit component would be reduced from N1.9 trillion in 2018 to N1.6 trillion.
Uche Uwaleke, a professor, and head of banking and finance department at Nasarawa State University in Keffi, told business a.m. that significant reduction in capital expenditure in the fiscal plan was worrying.
“The only worrying aspect of the proposed 2019 fiscal framework is the significant reduction in capital expenditure. Any funds freed in the process in addition to proceeds from the implementation of the newly introduced Voluntary Offshore Assets Disclosure Scheme, as well as other miscellaneous incomes, such as proceeds from loot recoveries should be used to augment the meagre allocation to capital expenditure,” Uwaleke said.
While noting that much of the increase in recurrent spending is ostensibly to accommodate the implementation of a new minimum wage, and therefore justified, he advised that the efficiency unit of the ministry of finance should intensify efforts at reducing MDAs overheads and avoidable wastages.
He welcomed the decision to reduce the total fiscal spending plan.
“I think the decision to scale down on the size of the 2019 budget is a wise one considering the present fiscal realities in Nigeria. The 2017 budget implementation experience, coupled with the revenue challenges being encountered in the execution of the 2018 budget calls for a conservative approach to next year’s budget.
“For example, the 2017 budget implementation report recently released by the Budget Office speaks of adverse variances in key budget targets due mainly to shortfalls in actual revenue receipts resulting in huge fiscal deficit,” Uwaleke noted.
According to him, the same scenario is playing out with regard to the 2018 budget in respect of which the federal government has just sought the approval of the National Assembly for about N2.8 billion to finance the budget.
“Therefore, it goes without saying that the decision to slow down government’s expansionary spending, especially in an electioneering year, will pose less threat to inflation, reduce the fiscal deficit to GDP ratio in line with the ERGP target as well as curtail government borrowing in view of the present huge debt service burden, which is clearly unsustainable at over 65 percent of revenue,” Uwaleke told business a.m.
Despite the reduction in budget size, Udoma assured members of the organised private sector, civil society groups and the media at the consultative forum last week that priority would still be given to human capital development, particularly on allocations to health, education, pensions and other benefits to retirees.
Consequently, he said, allocation for pensions and gratuities would be increased from N241 billion in 2018 to N527 billion next year to assure workers of their benefits.
Udoma said one percent of consolidated revenue fund (about N51 billion) would be set aside for basic healthcare fund as well as provision of counterpart funding for immunisation of children. This will be in line with the requirement of the National Health Act 2014.
On basic assumptions underlining the proposed budget, the minister said government was looking at a 2.3 million barrel per day oil production capacity (including condensate), reduced from about 2.4 million barrels per day target proposed in the National Economic Recovery and Growth Plan (NERGP).
Despite the recent oil output drop to about 1.9 million barrels a day, the minister expressed government’s optimism that the 2.3 million barrels a day target was achievable with production now increasing to about 2.15 million barrels a day and new oil productions coming into play.
Although a $50 per barrel oil price benchmark was proposed in the ERGP, he said with a significant rise in the price above $80 per barrel currently, government has proposed a $60 a barrel oil price for the budget.
He said N305 was proposed as exchange rate to the dollar, with government working to keep inflation down after slight increases in the last two months on the heels of 18 months consecutive decline.
The projected target gross domestic product (GDP) growth rate for the budget is put at 3.01 percent, reduced from 4.5 percent in the ERGP just as 3.6 percent is projected for 2020 and 3.9 percent for 2021.
“Growth is expected to increase from 0.8 percent in 2017 to 2.1 percent this year and 3.01 percent in 2019 with the continued implementation of the ERGP in 2019 and improved outlook for oil prices,” Udoma said.
On revenue, Udoma said based on the oil price and oil production assumptions, government expects to generate about N3.6 trillion from oil, up by about N500 billion from 2018 figures.
About N6.9 trillion revenue is projected to be available to the budget in 2019.
With other projections showing government expects to collect less revenue from some independent sources, he said only about N624 billion is expected to be realised, against about N847 billion in the 2018 budget.
To meet the revenue target, he said government would push revenue agencies to step up their roles, although no increases are being considered in company income tax (CIT) and value added tax (VAT) rates during the year.
“Government believes if it continues the implementation of the ERGP, the seven percent rate target in the short to medium term will be achieved. With our revenue-to-GDP ratio still very low at about eight percent, it is important our oil and non-oil revenues are increased substantially, despite being up by about 30 percent against the previous year,” he said.