Nigeria’s 2020 Federal Budget:
Total Estimate = N10.33trn ($27bn)
Recurrent = N4.8trn
Capital = N2.1trn
Debt Service = N2.4trn
Statutory Transfers = N557bn, Sinking Funds = N296bn (Sinking funds to retire maturing bonds issued to local contractors)
By Charles Jaja-Sackey
Investors pay close attention to the ambitions of a country by looking at it’s budget, and once again the Buhari administration has presented a disappointing N10.33 trillion ($27bn) budget.
Given that right reforms and investments are necessary for Africa’s largest economy to shake off the shackles, live up to its economic potential and bring more Nigerians out of poverty, a $27 billion Federal Budget is – to put it mildly – pitiful.
Look, Nigeria must start to build momentum and target at least a 7.1 percent annual GDP growth through 2030. This government should be positioning itself to benefit from trends such as rising demand from emerging economies, growing global demand for resources, and the spread of the digital economy.
Nigeria’s demographics is being reshaped by its young and rapidly growing population, it also has an advantageous geographic location in West Africa, which can dictate trade within the continent, as well as with Europe and North and South America.
In 2019, Nigeria’s annual federal budget should be much more ambitious in the range of $75 – $100 billion. At N35 trillion, Nigerians can TRULY feel the impact of development and change. What is this meagre N10.33 trillion going to achieve in 12 months, especially when around 68% of it is allocated for recurrent expenditure and debt servicing?
What are we scared of? Our Debt to GDP ratio is 24.1%; the International Monetary Fund’s (IMF) globally accepted debt levels for frontier economies is 50.0% of GDP. South Africa’s is 52.6%, Ghana is 71.8%, Egypt is 103.3%, and Kenya is 55.6%. What are we scared of?
Even at a meagre 2% annual growth, GDP of Nigeria is expected to be $500 billion. So the problem is not about access to credit, it’s partly about the unambitious and rather timid approach to dealing with this country’s challenges. Indonesia has a debt to GDP of about 28% and a $1.1 trillion economy, its President recently submitted a $178 billion budget for 2020.
Again, the problem is not about access to credit. Local and international creditors abound, we just need to meet key requirements – some of which is institutional reforms. The Federal Government must be willing to carry out the tough but necessary reforms that will begin to free us from the shackles of recurrent expenditure which is hovering at over N6 trillion per year.
Next, we need to look at how wretched our revenue generation is outside oil. At 3-4 per cent of GDP, non-oil revenue mobilisation is one of the lowest worldwide, reflecting weaknesses in revenue administration systems and systemic noncompliance. This country must deepen and widen the tax regime.
The fiscal reform should not only be for VAT, it must drastically cover other parts like property taxes, inheritance tax, excise duties, corporation tax, stamp duty, carbon tax, sugar tax, for instance. It must also reform income taxes and go deeper in its tax regime to include things like aggregate levy, climate change levy,, landfill tax, betting and gambling duties, petroleum revenue tax, spirits duty, beer and cider duties, vehicle excise duties, tobacco duties and much more.
The government must also issue more bonds, privatise moribund public assets, reform the Civil Service so that the number of humans in the value chain is phased out and replaced by efficient technology. And finally, begin to phase out parts or all of the subsidies that eat in to revenues.
I’m fed up with these meagre changes when the country is facing drastic challenges. We must be bold. We must step up to the task, and deliver!
-Jaja-Sackey wrote in from London