Brace Up For Another Recession — Buhari — Economic Confidential
Budget 2021: Brace Up For Another Recession — Buhari
President Muhammadu Buhari said, yesterday, that the country is heading for another recession, the second in four years.
He noted, however, that the Federal Government has put in place plans to ensure rapid recovery in 2021.
The President, who made the remarks while presenting the 2021 budget proposal to the National Assembly, spoke against the backdrop of a significant increase in deficit beyond the provisions of the Fiscal Responsibility Act, following revenue pressures faced by the government.
He said: “The 2021 Budget was prepared amid a challenging global and domestic environment due to the persistent headwinds from the coronavirus pandemic.
“The resulting global economic recession, low oil prices and heightened global economic uncertainty have had important implications for our economy.
“The Nigerian economy is currently facing serious challenges, with the macroeconomic environment being significantly disrupted by the coronavirus pandemic.
“Real Gross Domestic Product, GDP, growth declined by 6.1 per cent in the second quarter of 2020. This ended the three-year trend of positive, but modest, real GDP growth recorded since the second quarter of 2017.
“I am glad to note that, through our collective efforts, our economy performed relatively better than that of many other developed and emerging economies.
‘Second Recession In Four Years’
“GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with significant adverse consequences.
“However, we are working assiduously to ensure a rapid recovery in 2021. We remain committed to implementing programmes to lift 100 million Nigerians out of poverty over the next 10 years.
“As skills’ deficits limit employment opportunities in the formal economy, various skills’ development programmes are being implemented simultaneously to address this problem frontally.
“For instance, the government is implementing the Special Public Works programme to provide employment opportunities to 774,000 youths across the 774 local government areas of Nigeria.
“We have also recently introduced the N75 billion Nigeria Youth Investment Fund, of which N25 billion have been provided in 2021 Budget.
“We thank all Nigerians, for your perseverance and continued support during these difficult times. We remain unwavering in our commitment to actualize our vision of a bright future for everyone.”
Deficit Beyond Provisions Of Law
Also, against the backdrop of the revenue pressures faced by the Federal Government, the 2021 Appropriation Bill showed a significant increase in deficit beyond the provisions of the Fiscal Responsibility Act.
The deficit, inclusive of government-owned enterprises and project-tied loans, is projected at N5.2 trillion, which represents 3.64 per cent of estimated Gross Domestic Product, GDP, 0.64 percentage point above the 3.0 per cent threshold set by the Fiscal Responsibility Act, 2007.
Explaining this position, Buhari, however, stated: “We still face the existential challenge of coronavirus pandemic and its aftermath; I believe that this provides a justification to exceed the threshold as provided for by the law.”
Giving further details on the deficit, he said: “The deficit will be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.”
Commitment To Debt Obligations
Buhari also indicated that the government was determined to fulfilling the debt servicing obligations against the backdrop of the increasing debt burden and debt servicing-to-revenue ratio.
In this connection he stated: “We remain committed to meeting our debt service obligations. Hence, we have provisioned N3.12 trillion for this in 2021, representing an increase of N445.57 billion from N2.68 trillion in 2020.
“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion has been provided for foreign debt service. N220 billion is provided for transfers to the Sinking Fund to pay off maturing bonds issued to local contractors and creditors.”
Budgeted Figures
Meanwhile the 2021 budget details which retained most parameters of the recently revised 2020 budget, show that aggregate revenue of N5.84 trillion was projected to fund N10.81 trillion expenditure.
In a budget of few surprises tagged a “Budget of Economic Recovery and Resilience”, the Ministry of Defence, more than four years in a row has taken the lead with a proposed allocation of N840billion, while Police and Education got N441.39billion and N554.10billion respectively.
The President, in his presentation speech, said the earmark for education ministry, represented a sixty percent increase from the 2020 budget .
Capital Expenditure
The budget provided an aggregate sum of N3.85 trillion to be available for capital projects in 2021, including: N1.80 trillion for Ministries, Departments and Agencies (MDAs’) capital expenditure; N745 billion for Capital Supplementation; N355 billion for Grants and Aid-funded projects; N20 billion for the Family Homes Fund; N25 billion for the Nigeria Youth Investment fund; N336 billion for 60 Government Owned Enterprises; N247 billion for capital component of Statutory Transfers; and N710 billion for projects funded by Multi-lateral and Bi-lateral loans.
The 2021 capital budget is N1.15 trillion higher than the 2020 provision of N2.69 trillion.
Giving more details into the capital expenditure strategy, Buhari stated: “At 29 percent of aggregate expenditure, the provision moves closer to this Administration’s policy target of 30 percent.
“Capital expenditure in 2021 remains focused on the completion of as many ongoing projects as possible, rather than the commencement of new ones. “We have also made efforts to ensure equity in the distribution of projects and programmes in the proposed budget.
“I will be providing the National Assembly a list of some of the most critical projects which we must work collectively to ensure they receive adequate funding. Until projects reach completion, they do not deliver the dividends of democracy that Nigerians rightly deserve.
Hardships Citizens Face
Buhari spent some time addressing the major concerns of economic hardships most Nigerians are facing as a result of the economic policies of his administration which has recently been worsened by the impact of the COVID-19 pandemic.
He stated: “I fully understand the difficulties many of our people are going through with the implementation of our reform agenda.
“However, the measures we are implementing are necessary for sustainable public finance, better allocation of our scarce resources and improved public service delivery.
“As we implement these reforms, social safety nets will be implemented to cushion the effect of the most vulnerable of our citizens as well as business owners.
“In furtherance of our inclusiveness agenda, the sum of N420 billion has been provided to sustain the Social Investment Programme. N20 billion has also been set aside for the Family Homes Fund, our Social Housing Programme.
“We have expanded our National Social Register, to include an additional one million Nigerians following the onset of Coronavirus.
“We recently introduced the N75 billion Survival Fund Programme to support and protect businesses from potential vulnerabilities.
“Furthermore, the Central Bank of Nigeria is reducing the interest rate on its intervention facilities from 9% to 5% with a 1-year moratorium till 31st March 2021, to provide concessional lending of: N100 billion to households and small businesses; N100 billion to the healthcare and pharmaceutical industry; and N1 trillion to large agricultural and manufacturing businesses.
“We urge Nigerian businesses and individuals to make the most of these concessional credit facilities and other such opportunities.”
Revenue Challenges
The President also took time to update the legislators on the revenue challenges of the Federal Government, especially as it relates to the implementation of both the 2020 and 2021 budget.
He stated: “To improve independent revenue performance, I have directed that the cost profiles of Government Owned Enterprises (‘GOEs’) should be scrutinized and limits imposed on their cost-to-revenue ratios. Supervising ministers have also been directed to ensure closer monitoring of the revenue generating activities and expenditures of the Government Owned Enterprises.
“Let me emphasize that revenue generation remains our major challenge. Nevertheless, government is determined to tackle the persisting problems with domestic resource mobilization, as there is a limit to deficit financing through borrowing. “The time has come for us to maintain a healthy balance between meeting our growing expenditure commitments and our long-term public financial health.
2021 Budget Priorities
On the major priorities of the 2021 Buhari said the Appropriation Bill is designed to further deliver on the goals of our Economic Sustainability Plan. He stated: “This plan provides a clear road map for our post—Coronavirus economic recovery as a transitional plan to take us from the Economic Recovery and Growth Plan (2017-2020) to the successor Medium-Term National Development Plan (2021-2025).
“In view of the many challenges confronting us, we must accelerate our economic recovery process, promote social inclusion and strengthen the resilience of the economy.
“The 2021 Appropriation has, therefore, been themed the ‘Budget of Economic Recovery and Resilience’. It is expected to accelerate the pace of our economic recovery, promote economic diversification, enhance competitiveness and ensure social inclusion.”
Finance Bill 2020
Buhari’s administration had started using Finance Bill to give impetus to its budget implementation in 2019.
Consequently, he stated: “I have directed the Minister of Finance, Budget and National Planning to finalise the Finance Bill 2020, which will be forwarded for your kind consideration and passage into law, shortly after today’s 2021 Budget presentation. The Finance Bill is to support the realization of our 2021 revenue projections, adopt appropriate counter-cyclical fiscal policies and enhance the efficiency of fiscal incentives.”
Revenue Estimates
On the revenue profile of the budget, Buhari told the legislators that “based on the fiscal assumptions and parameters, total federally distributable revenue is estimated at N8.433 trillion in 2021. Total revenue available to fund the 2021 Federal Budget is estimated at N7.886 trillion.
“This includes Grants and Aid of N354.85 billion as well as the revenues of 60 Government-Owned Enterprises.
“Oil revenue is projected at N2.01 trillion. Non-oil revenue is estimated at N1.49 trillion.
“As you will observe, the format of the 2021 Appropriation Bill has been modified to include budgeted revenues, no matter how small, for each MDA, to focus on internal revenue generation. “Accordingly, I implore you to pay as much attention to the revenue side as you do to the expenditure side.
Planned 2021 Expenditure
An aggregate expenditure of N13.08 trillion is proposed for the Federal Government in 2021. This includes N1.35 trillion spending by Government-Owned Enterprises and Grants and Aid funded expenditures of N354.85 billion. For 2021, the proposed N13.08 trillion expenditure comprises: Non-debt Recurrent Costs of N5.65 trillion; Personnel Costs of N3.76 trillion; Pensions, Gratuities and Retirees’ Benefits of N501.19 billion; Overheads of N625.50 billion; Debt Service of N3.124 trillion; Statutory Transfers of N484.49 billion; and Sinking Fund of N220 billion (to retire certain maturing bonds).
No Padding
Besides, the President warned lawmakers against including projects in the budget that would be difficult to implement.
“Let me re-emphasize that Nigerians expect that the the 2021 budget, will contain only implementable and critical projects, which when completed, will significantly address current structural challenges of the economy”, he stated in his concluding remarks on the budget.
2020 Budget Performance Update
President Buhari also gave an overview of what has happened in the implementation of 2020 budget so far.
He stated: “As at July 2020, the Federal Government’s actual revenue available for the budget was N2.10 trillion. This revenue performance was only 68 per cent of our pro-rated target in the revised 2020 budget.
“At N992.45 billion, oil revenue performed well above our budget target, by 168 per cent. Non-oil tax revenues totalled N692.83 billion, which was 73 per cent of the revised target.
“On the expenditure side, as at end of July 2020, a total of N5.37 trillion had been spent as against the pro-rated expenditure of N5.82 trillion. “Accordingly, the deficit was N3.27 trillion. This represents 66 per cent of the revised budgeted deficit for the full year.
“Despite these challenges, we met our debt service obligations. We are also up to date on the payment of statutory transfers and staff salaries, while overhead costs have been significantly covered.
“For the first time in recent years, we commenced the implementation of this year’s capital budget in the first quarter. As at 15th September 2020 a total of about N1.2 trillion had been released for capital projects. Every Federal MDA has received at least 50 per cent of its 2020 capital expenditure budget, in line with my earlier directives.
“To bridge the infrastructure deficit, we are also implementing innovative financing strategies to pull-in private sector investment. The Infrastructure Company, which I recently approved, will become a world-class infrastructure development vehicle, wholly focused on making critical infrastructural investments in Nigeria. This Infrastructure Company will raise funding from the Central Bank of Nigeria, the Nigeria Sovereign Investment Authority, the Africa Finance Corporation, pension funds as well as local and foreign private sector development financiers.
“Under the Road Infrastructure Tax Credit Scheme, we are undertaking the construction and rehabilitation of over 780 km of roads and bridges nationwide to be financed by the grant of tax credits to investing business. “Ongoing projects under this scheme include construction and rehabilitation of Lokoja-Obajana-Kabba-Ilorin Road Section II (Obajana-Kabba) in Kogi and Kwara States; construction of Apapa-Oworonshoki-Ojota Expressway in Lagos State; and Construction of Bodo-Bonny road with a Bridge across the Opobo Channel in Rivers State.”
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