President Muhammadu Buhari, on Thursday, 8 October 2020, presented the 2021 Budget (the Budget) of the Federal Government of Nigeria (FGN) at a joint session of the National Assembly. The Budget, themed “Budget of Economic Recovery and Resilience”, is expected to accelerate the pace of economic recovery following the COVID-19 pandemic (the Pandemic), enhance competitiveness and ensure social inclusion.
The Budget shows an expected revenue of ₦7.88 trillion, aggregate projected expenditure of ₦13.08 trillion and a deficit of ₦5.20 trillion. The proposed expenditure in the Budget is higher than the ₦10.81 trillion figure in the revised 2020 Appropriation Act by 21%, while the expected revenue also increased by 35% from ₦5.84 trillion to ₦7.88 trillion.
- Daily crude oil production is set at 1.86 million barrels per day, an increase of 3% over the revised 2020 budget estimate
- The benchmark oil price is set at $40 per barrel, up from the $28 per barrel in the 2020 revised budget
- GDP growth is projected at 3.0% compared to -4.2% in the prior year
- Inflation and exchange rates are projected at 11.95% and
N379 to USD 1 respectively
The key takeaways from the budget presentation are as follows:
- Non-debt recurrent expenditure continues to represent a large portion of government expenditure as salaries, overheads and other recurrent expenditure accounts for about 43% of the total expenditure. This is an increase of 14% over the revised 2020 budget. However, the FGN is putting in place measures to ensure the cost component is properly managed. For instance, with respect to personnel cost, the FGN will ensure only federal staff that have been captured on the Integrated Personnel Payroll Information System (‘IPPIS’) platform will receive salaries in 2021. Also, the FGN plans to address revenue leakages by sustaining its policy on the deregulation of petroleum product pricing as well as the implementing a ‘service-based’ electricity tariff plan.
- Capital expenditure increased by 55%, compared to the amount budgeted in the revised 2020 budget. However, the FGN intends to prioritise completion of outstanding projects rather than embark on new ones, with unfunded projects rolled over from 2020 to 2021.
- Oil revenue will account for about 25% of the projected revenue in the Budget while non-oil revenue, including revenue from independent sources, will account for the remaining 75%. While oil revenue increased by 35% over the revised 2020 budget, non-oil revenue reduced in both percentage terms and absolute terms by 7% and
N110 billion respectively. The reduction in the non-oil revenue may be attributable to the impact of the Pandemic on businesses and individuals and their ability to pay taxes and other levies. However, revenue from independent and other sources increased by 37% over the revised 2020 budget due to FGN’s plan to increase independent revenue from all Government Ministries, Departments and Agencies (MDAs) in 2021. This may need to be executed with caution to ensure MDAs do not focus more on revenue-generating activities rather than their core mandates.
- Nigeria’s debt profile continues to rise with debt servicing (including sinking funds) accounting for about 25% of the proposed expenditure. Considering also that there is a budgetary deficit of 40% of total expenditure, it is expected that additional borrowings – both local and international – will be required to fund the Budget.
- The Finance Bill 2021 is currently being worked on and is expected to further amend or introduce provisions in the tax laws that align them with current realities and assist the government to realise its revenue projections for the 2021 fiscal year. The Bill is also expected to aid FGN in achieving its objectives of adopting countercyclical fiscal policies and enhancing the efficiency of fiscal incentives. Furthermore, the FGN intends to publish a “Tax Expenditures Statement”, that will show the estimated cost of tax exemptions, incentives and rebates provided under Nigeria law.
The major concern for the public has always been on the implementation of the Budget, considering the uncertainties the Pandemic has caused. The general volatility associated with oil prices and the ability to meet budgeted daily crude oil production will challenge the ability of the FGN to meet its revenue targets. Therefore, we expect the National Assembly to take into consideration all of these uncertainties while reviewing the Budget to ensure that it truly delivers on its aspirations to the Nigerian populace when signed into law.