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Businesses Hopeful of Improved Budget Execution as Buhari Proposes N10.33tn

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Businesses Hopeful of Improved Budget Execution as Buhari Proposes N10.33tn

Businesses Hopeful of Improved Budget Execution as Buhari Proposes N10.33tn
October 09
10:40 2019
  • Earmarks N2.45tn to service debt  
  • N262bn for Works and Housing  
  • Adopts 7.5% VAT rate

Representatives of the organised private sector (OPS) yesterday expressed optimism that the early presentation of the 2020 Appropriation Bill by President Muhammadu Buhari would pave the way for its early passage and subsequently ensure an improved implementation of the budget.

Reacting to the presentation of the fiscal bill to the National Assembly, they said in separate interviews with THISDAY that yesterday’s event signified the return to the January-December budget cycle, which could give enough time for budget implementation and make it more conducive for other stakeholders in the economy to plan their activities.

Buhari yesterday presented N10.33 trillion proposed budget for  the 2020 fiscal year, at a joint sitting of the National Assembly for approval.

As he presented the appropriation bill for consideration,   the Senate made 16 recommendations on the Medium Term Expenditure Framework (MTEF) that will guide the final approval of the 2020 budget.

The budget estimate was N40 billion less than the N10.72 trillion approved last week by the National Assembly  in the 2020-2022 Medium-Term Expenditure Framework and Fiscal Strategy Policy (MTEF/FSP) draft.

The president, who made his way into the House of Representatives chambers at 2.01 pm, where he presented the budget estimate, said he attached to the 2020 budget proposal a finance bill for the consideration of the lawmakers.

Buhari while presenting the 2020 Appropriation Bill tagged, ‘Budget of Sustaining Growth and Job Creation’, commended members of the National Assembly for their avowed commitment to cooperate with the executive to accelerate the pace of the socio-economic development and enhance the welfare of the people.

Although the president only presented the highlights of the budget proposal for the next fiscal year, he, however, assured the lawmakers that the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, would provide full details of these proposals at a later date.

Buhari said the 2020-2022 MTEF/FSP had set out the parameters for the 2020 Budget.

He stressed that his administration had adopted a conservative oil price benchmark of $57 per barrel daily oil production estimate of 2.18 million barrels per day (mbpd) and an exchange rate of N305 per dollar for 2020.

In addition, the federal government expects enhanced real GDP growth of 2.93 per cent in 2020, driven largely by non-oil output, as economic diversification accelerates and the enabling business environment improves.

Inflation is also expected to remain slightly above single digits in 2020.

Buhari said: “An aggregate expenditure of N10.33 trillion is proposed for the federal government in 2020. The expenditure estimate includes statutory transfers of N556.7 billion, non-debt recurrent expenditure of N4.88 trillion and N2.14 trillion of capital expenditure (excluding the capital component of statutory transfers). Debt service is estimated at N2.45 trillion, and provision for Sinking Fund to retire maturing bonds issued to local contractors is N296 billion.”

According to him, N556.7 billion is provided for Statutory Transfers in the 2020 budget and includes: N125 billion for the National Assembly; N110 billion for the judiciary; N37.83 billion for the North East Development Commission (NEDC); N44.5 billion for the Basic Health Care Provision Fund (BHCPF); N111.79 billion for the Universal Basic Education Commission (UBEC); and N80.88 billion for the Niger Delta Development Commission (NDDC), which is now supervised by the Ministry of Niger Delta Affairs.

He stated that budgetary allocation to the National Human Rights Commission has been increased from N1.5 billion to N2.5 billion to enable it to perform its functions more effectively.

“Accompanying the 2020 budget proposal is a finance bill for your kind consideration and passage into law. This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal law,” Buhari added.

He said the objectives of the bill included promoting fiscal equity by mitigating instances of regressive taxation; reforming domestic tax laws to align with global best practices; introducing tax incentives for investments in infrastructure and capital markets, among others.

He said: “The draft Finance Bill proposes an increase of the VAT rate from 5% to 7.5%. As such, the 2020 Appropriation Bill is based on this new VAT rate. The additional revenues will be used to fund health, education and infrastructure programmes. As the states and local governments are allocated 85 per cent of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well.

“The VAT Act already exempts pharmaceuticals, educational items, and basic commodities, which exemptions we are expanding under the Finance Bill, 2019 – specifically, Section 46 of the Finance Bill, 2019.”

The president added  that the bill would expand the exempted items to include brown and white bread; cereals, including maize, rice, wheat, millet, barley and sorghum; fish of all kinds; flour and starch meals; fruits, nuts, pulses and vegetables of various kinds; roots such as yam, cocoyam, sweet and Irish potatoes.

Other items to be exempted from VAT are meat and poultry products, including eggs, milk, salt and herbs of various kinds, natural water and table water.

Buhari added that the proposals would raise the threshold for VAT registration to N25 million in turnover per annum, such that the revenue authorities could focus their compliance efforts on larger businesses thereby bringing relief for micro, small and medium-sized businesses.

The president said it was essential to intensify revenue generation efforts, noting that his administration remains committed to ensuring that the inconvenience associated with any fiscal policy adjustments is moderated such that the poor and the vulnerable, who are most at risk, do not bear the brunt of these reforms.

He equally pointed out that the “sum of N8.155 trillion is estimated as the total revenue in 2020 and comprises oil revenue N2.64 trillion, non-oil tax revenues of N1.81 trillion and other revenues of N3.7 trillion. This is seven per cent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.”

Buhari said though the 2020 capital budget was N721.33 billion or 23 per cent lower than the 2019 budget provision of N3.18 trillion, it was  still higher than the actual and projected capital expenditure outturns for both the 2018 and 2019 fiscal years, respectively.

He, however, said at 24 per cent of aggregate projected expenditure, the 2020 provision falls significantly short of the 30 per cent target in the Economic Recovery and Growth Plan (ERGP) 2017-2020.

Buhari stressed that the main emphasis would be the completion of as many ongoing projects as possible, rather than commencing new ones, stressing that MDAs have not been allowed to admit new projects into their capital budget for 2020, unless adequate provision has been made for the completion of all ongoing projects.

 Accordingly, the president noted that the federal government has rolled over capital projects that are not likely to be fully funded by the end of 2019 into the 2020 budget.

According to him, some of the key capital spending allocations in the budget include: Works and Housing- N262 billion, Power N127 billion; Transportation, N123 billion; Universal Basic Education Commission, N112 billion and Defence N100 billion.

Others are zonal intervention projects: N100 billion, Agriculture and Rural Development: N83 billion; Water Resources N82 billion; Niger Delta Development Commission N81 billion; Education N48 billion and Health N46 billion.

Also, Industry, Trade and Investment got N40 billion; North East Development Commission, N38 billion; Interior: N35 billion; Social Investment Programmes: N30 billion; Federal Capital Territory, N28 billion; and Niger Delta Affairs Ministry N24 billion.

The president said the federal government had provided N2.45 trillion for debt servicing, adding that “of this amount, 71 per cent is to service domestic debt, which accounts for about 68 per cent of the total debt. The sum of N296 billion is provided for the Sinking Fund to retire maturing bonds issued to local contractors.

Earlier in his welcome address, President of the Senate, Dr. Ahmad Lawan, stressed the need for the present budget cycle to be changed to January-December.

According to him, the National Assembly and the executive must work together to ensure the realisation of this objective.

The National Assembly, he added, will swing into action to start processing the budget estimates.

“We have earmarked the month of October to be the sole window for all budget defence activities in this year by all MDAs,” adding: “In this regard, our committees will be expected to conclude their work on budget defence within October, this year. The subsequent necessary legislative work will be carried out in November and December, leading to eventual passage before the end of this year,” he stated.

Speaker, House of Representatives, Hon. Femi Gbajabiamila, in his vote of thanks, said the budget presentation being the first in the ninth session of the National Assembly, makes it even more significant as both the legislature and the executive have demonstrated readiness and commitment to work together in order to pass it in good time.

Businesses Anticipate Improved Implementation

Meanwhile, representatives of organised private sector (OPS) have expressed optimism that the early presentation of the appropriation bill would stabilise the fiscal cycle.

They said this in separate interviews with THISDAY.

The Director General of Nigeria Employers’ Consultative Association (NECA), Mr. Timothy Olawale, viewed the early presentation of the budget to the National Assembly as a highly commendable step, adding that there is still room to improve further on the timeline.

“It is hoped that the legislators will also do the needful by taking action on treating the budget with the good of the citizenry as their sole driver.

“Our expectation is that the budget should be back to the president for assent or comments on aspects that require tinkering with by second week in December, so that it would be ready for implementation by the first week of January 2020,” he said.

According to the Director General of the Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Mr. Ayoola Olukanni, the early presentation of the budget by the president is in line with what the private sector had been clamouring for many years.

He said: “We are happy with the development. However, we also know that the early presentation is just one side of the story and the other side of it is early passage of the budget by the National Assembly.

“So, we are hoping that the National Assembly will be on the same page with the president to ensure the early passage so that budget implementation will commence from January 1, 2020.

“We sincerely hope and demand that the culture of late passage of national budget should stop.”

He was also optimistic that the proposed budget would have a positive impact on the economy by facilitating job creation and lifting millions of Nigerians out of poverty.

He, however, warned that Nigeria should have a, “firm grip on the country’s debt so that it will not fall into another debt crisis, which it exited just a decade ago.”

Similarly, the President of Lagos Chamber of Commerce and Industry (LCCI), Mr. Babatunde Ruwase, welcomed the early presentation of the budget and believed that the good relationship between Buhari and the leadership of the National Assembly would foster an early passage of the budget and make the return of January to December budget year a reality.  Ruwase said: “This is October. So the members of the National Assembly have enough time to pass the budget before January 2019 if they are serious with their promise to quicken the process of enacting the Appropriation Bill.”

He also expressed the view that the proposed budget’s assumptions were too ambitious at $57 per barrel of crude oil and the production target of 2.18 mbpd.

According to him, it would be more realistic to peg the oil price at $50 per barrel because of the volatile nature of the international oil market.

He said: “OPEC is talking about reducing oil supply. So, it is still uncertain how the federal government will realise its revenue target that will enable it to implement the budget. Are we to borrow to do capital projects or resort to Public Private Partnership (PPP) initiative?”

He suggested that the government should have the political will to remove fuel subsidy, which is far above a trillion naira, to be able to raise appreciable fund to do capital projects and implement social investment projects that would impact positively on Nigerians.

In his assessment of the Appropriation Bill, the Managing Director of Afrinvest Securities Limited, Mr. Ayodeji Ebo, said the presentation sent the signal that the government was trying to do something differently.

According to him, “They are trying to see how we can return to the one-year budget cycle. However, the elephant in the room is still how the government would really realise the budgeted revenue.

“Looking at past budgets in terms of achievement and revenue, it has been very poor. So, the main issue is how will the government fund this budget that it would not rely on the Central Bank of Nigeria’s support through ways and means?

“Even this N10 trillion budget cannot solve our problem. What can they do to partner and provide comfort for foreign direct investors as well as domestic investors? There are the issues that the government should focus on. In terms of business climate, the government must make it conducive so that we can attract much investments to reduce the infrastructure gaps.”

Senate Approves 16 Recommendations for Considerations in 2020 Budget

Also yesterday, the Senate has made 16 recommendations on the MTEF that will guide the final approval of the 2020 budget by the National Assembly.

Though the House of Representatives is yet to release its recommendations on the MTE, it is expected that when it does, the Joint Finance Committee and the Joint Appropriation Committee of both the Senate and House of Representatives will harmonise their positions.

The recommendations include: adoption of 2.18mbpd as daily production output in 2020; adoption of $57/barrel as crude oil benchmark price for the fiscal year;. Increasing the revenue target of Nigeria Customs Service (NCS) from  N942.6 billion to N1.5 trillion; setting aside N557.4 billion from the revenue increment of NCS to reduce borrowing by N200 billion and increase capital expenditure; and. immediate amendment of the National Assembly Act on Production Sharing Contracts (PSC) with lOCs..

Others are: inclusion of government-owned enterprises budgets  in the nation’s budget to ensure proper checks and balances among government agencies; Debt Management Office (DMO) to put more efforts and strategies in managing the foreign and local debts and calling for  an urgent review/amendment to the FRA Act and the various laws of the revenue generating agencies to align with current realities.

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