Share:

WHAT TO EXPECT IN 2020: A REVIEW OF 2020 BUDGET  


Posts: 9
Admin
(@eden)
Member
Joined: 2 months ago

1577785624-green-arrow-up-represents-growth-year-three-dimensional-rendering-d-illustration-150888879.jpg

On the 8th of October, 2019, President Muhammadu Buhari presented the 2020 budget proposal (titled: Budget of sustaining growth and job creation) to a joint session of the National Assembly which was signed into law on Tuesday, 17 December, 2019 after it was reviewed. The 2020 budget will return the country to the January-December budget cycle. Meaning that it shall take effect from January 2020

THE BREAKDOWN

Out of the Proposed Total expenditure of N10.33 trillion, N4.88 trillion is budgeted for Non-debt Recurrent expenditure while N2.14 trillion is allocated for Capital expenditure,  debt service is N2.45 trillion, a sinking fund is N296 billion and statutory transfer is N557 billion.

Of the capital expenditure, Key capital spending allocations include Works & Housing N262b; Power N127b; Transportation N123b; Universal Basic Education: N112b; Defence N100b; Education N48b; and Health N46b.

On the other hand, the estimated total revenue is N8.16 trillion where the oil revenue and non-oil revenue are estimated to be N2.64 trillion and N5.51 trillion respectively.

The projected expenditure of N10.33 trillion and expected revenue of N8.16 trillion result in a deficit of N2.17 trillion, for the 2020 fiscal year. The budget deficit is to be financed by borrowing through domestic and foreign sources.

However, the execution of the 2020 budget is based on the following key assumptions with the increment of Value Added Tax (VAT) of 5% to 7.5% in finance bill that was submitted alongside the proposed 2020 budget.

The key assumptions are as follows:

  • Oil production: 2.18 million barrel per day (mbd)
  • Oil Price: $57bn
  • Inflation rate : 10.81%
  • GDP Growth Rate: 2.93%
  • $1:N305

There was also an amendment of the Deep Offshore and Inland Basin Production Sharing Contract Act, 1999.

ANALYSIS AND IMPLICATIONS

The benchmark oil price which is fixed at a conservative price of $57 per barrel decreased down from $60 per barrel, approved for the 2019 budget. This could be realized considering the escalating trade tensions between the US and China, the imposition of new rounds of sanctions on Iran and the multiplier effect of the volatility of commodity prices as well as the need to cushion against unexpected price shock.

The estimated daily oil production of 2.18 million barrels per day (mbd) appears to be unrealistic even with the fact that it is lower than the projected oil production volume of 2.3mbpd for 2019. This is due to the fact that actual daily crude oil productions and exports have been below budget projections since 2013. For instance, as of first half of this year, it was 1.86mbpd and as of November 2019, Production was reported at 1.798mbpd.

Another key observation in the budget is the reduction in the over-reliance on oil revenue which is estimated to contribute only N2.64 trillion (32.39%) of the projected revenue while N5.51 trillion (67.52%) is expected to be derived from non-oil revenue. This is commendable considering that in the approved 2019 budget, oil revenue accounted for about 53% of the total budgeted revenue which implies that we are gradually transitioning our economy from being a mono-cultured economy to a multi-cultured economy.

On the increment of VAT rate from 5% to 7.5 %, the economy may experience a reduced budget deficit as a result of its vast contribution in generating more revenue which if well utilized, could be used for the provision of infrastructure and social services. However, the implication is that the VAT rate increase will result in higher-cost production and investment, which will be passed on to the consumers and inflation will still be on a high. Though, only businesses whose annual turnover is N25 million and above will be required to register for VAT, charge and collect VAT on its sales. This enhances the competitiveness of Micro, Small and Medium-Sized Enterprises (MSMEs) who do not meet up with the annual turnover and avoids the burden of administering VAT on them, making them one of the biggest beneficiaries of the new finance bill.

The new amendment of the Deep Offshore and Inland Basin Production Sharing Contract Act, 1999 introduced key changes including the introduction of incremental royalty rate based on the price of oil. It also mandated a periodic review of the Production Sharing Contract (PSC) arrangement every eight years with the government estimating that the move would help Nigeria generate an additional $500million revenue in 2020. Well, this is a good move if you ask me.

CONCLUSION

It is observed that little attention is paid to human capital development such as education and health whose allocation is N48 billion and N46 billion respectively out of the total proposed capital expenditure. If more resources are allocated to human capital development, it will pay off in the long run as budget deficit will be reduced and the expected generated revenue will be channeled to capital projects rather than using it to service debt.

The 2020 budget seems realistic but its accomplishment to some extent depends on the global and domestic economic activities. While we keep our fingers crossed and watch how the event unfolds to commensurate the budget, many economic changes should not be expected in 2020.

 

 
Reply

Leave a reply


Maximum allowed file size is 2MB

Preview 0 Revisions Saved
%d bloggers like this:

Please Login or Register