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Budget of Economic Recovery and Resilience: About The 2021 Budget

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Nigeria’s President, Muhammadu Buhari on the 8th of October submitted the 2021 budget tagged the budget of “Economic Recovery and Resilience to the National Assembly”. The budget is 27% higher than the 2020 budget which was reviewed to N10.3trn as a result of the harsh economic realities of the COVID-19 pandemic. With oil revenues still being Nigeria’s highest expectation, the oil prices are important to the workings and performance of the budget. The 2021 Fiscal year has many assumptions with the benchmark oil price set at $40/barrel in realities with the current oil prices.

Some of the parameters guiding the budget are:

  • Benchmark oil price set at $40/barrel Oil production estimate set at 1.86m barrels per day (including condensates of about 300,000 to 400,000 barrels per day)
  • Other parameters set for the budget are the exchange rate of N379/$. The growth of the GDP estimated for the 2021 fiscal year is also 3%, which will be difficult to achieve based on current economic realities. The high rising inflation has also been set at 11.95% and this is dangerous as inflation may rise even higher than that. Inflation in Nigeria has risen to almost 30% on some days and is bordering around 15% in monthly headline inflation. 

 

Revenue Estimates

  •  The total distributable revenue for the budget is N8.5trn out of the N13.08trn budgeted for the fiscal year.
  • The total revenue available for spending in the budget is N7.886trn. The budget will be funded with Grants and Aid of N354.85 billion, as well as the revenues of 60 Government-Owned Enterprises. This can be understood in efforts to increase the Internally Generated Revenue (IGR) of the government.
  • Oil revenue is pegged at N2.01trn while Non-oil revenue is pegged at N1.49trn.
  • The spendable budget will be sponsored by 25.5% of the total oil revenue while non-oil revenues will fund 18.9% of the budget. Others will be sponsored by borrowings from international organisations and grants and foreign aids. This includes N1.35 trillion spending by Government-Owned Enterprises and Grants and Aid funded expenditures of N354.85 billion.
  • The expected estimate of the budget to be spent by government-owned enterprises including those sponsored by Grants and Aids is N1.7trn.

Other estimated budget spending can also be seen as:

  • Non-Recurrent Costs - N5.65 trillion (43% of the budget).
  • Personnel Costs - N3.76 trillion (29% of the budget).
  • Pensions, Gratuities and Retirees’ Benefits - N501.19 billion.
  • Overheads - N625.50 billion.
  • Debt Service - N3.124 trillion (24% of the budget).
  • Statutory Transfers - N484.49 billion.
  • Sinking Fund - N220 billion (to retire certain maturing bonds).

 

Despite the much-flogged economic resilience by the federal government, the cost of governance is still too high at 33%(N4.2trn) of the total budget. The non-debt recurrent expenses of the budget is a total of 43% of the budget at N5.65 trillion. Another facade of the economic recovery and resilience budget is that 24% of the budget will be spent on debt servicing amounting to N3.124trn. Of this, 70% of the total amount goes to domestic debt servicing while 30% goes to foreign debt servicing. This amounts to N2.183trn and N940.8bn respectively. N220bn of the budget will also be in the Sinking Fund. This will be for the bonds to local contractors and creditors. Nigeria has a budget deficit of N5.2trn which is higher than the 3% GDP estimated by the budget for 2021.

It amounts to 3.64% of the budget and is also higher than the requirement of the Fiscal Responsibility Act of 2007. The so-called Economic recovery budget is still largely dependent on borrowings with N4.28trn expected to be borrowed to fund the deficit. Privatisation proceeds and multilateral and bilateral loans will also contribute to the funding of the deficit.

Statutory Transfers in the 2021 Budget stand for an increase of N56.46 billion (or 13 percent) over the revised 2020 budget for the fiscal year. The Statutory Transfer has been set for various commissions and agencies and they are as follows:

  • Niger Delta Development Commission – N63.51 billion.
  • North East Development Commission – N29.70 billion.
  • Judicial Council – N110.00 billion.
  • Universal Basic Education Commission – N70.05 billion.
  • Independent National Electoral Commission – N40.00 billion.
  • National Assembly – N128.00 billion.
  • Public Complaints Commission – N5.20 billion.
  • Human Rights Commission – N3.00 billion.
  • Basic Health Care Provision Fund – N35.03 billion.

Of the total budget for statutory transfers, the National Assembly got the highest allocation of 26%, in what Nigerians have roundly criticised. Salaries are yet to be paid across states and the cost of living is rising higher than ever yet the cost of governance is still skyrocketing. Of the statutory transfers, 23% is going to the National Judicial Council while the Universal Basic Education Commission gets 14%. NDDC will get 13% despite the difficulties seen in the previous accounts. The Public Complaints Commission which has been largely inactive and the sleeping Human Rights Commission got the least at 1% each.

Recurrent expenditure

The recurrent budget for 2021 has been set at an estimate of 37% of the budget (N4.888 trillion). This has been allocated to paying salaries and overhead costs of MDAs. The recurrent expenditures (i.e. Salaries, Pensions, Gratuities and Retirees’ Benefits and overheads) for the MDAs providing critical public services include;

N227.02 billion for the Ministry of Interior;

N441.39 billion for the Ministry of Police Affairs;

N545.10 billion for Ministry of Education;

N840.56 billion for Ministry of Defence; and

N380.21 billion for Ministry of Health.

The Ministry of Defence (17%), followed by Ministry of Education (11%), and Ministry of Police Affairs (9%) got huge shares of the budget allocation.

Capital expenditure

A total sum of N3.85 trillion is being provided for capital projects as follows;

  • N1.80 trillion for 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.
  • N710 billion for projects funded by Multi-lateral and Bi-lateral loans. The capital budget allocation is N1.16 trillion higher than the 2020 provision of N2.69 trillion.

 

At 29% of aggregate expenditure, the budget moves closer to the Administration’s policy target of 30%. Highlights of the 2021 capital projects The key capital spending allocations in the 2021 Budget include;

  • Power – N198 billion (inclusive of N150 billion for the Power Sector Recovery Plan);
  • Works and Housing – N404 billion.
  • Transportation – N256 billion.
  • Defence – N121 billion.
  • Agriculture and Rural Development – N110 billion.
  • Water Resources – N153 billion.
  • Industry, Trade and Investment – N51 billion.
  • Education – N127 billion.
  • Universal Basic Education Commission – N70 billion.
  • Health – N132 billion.
  • Zonal Intervention Projects – N100 billion.
  • Niger Delta Development Commission – N64 billion. The major chunk of the budget allocation for important capital projects goes to Works and Housing, Transportation, Power, Water Resources, Health, Education, Defence, Agriculture, etc.

 

The Health sector is getting a major boost as there is an increase of 157% in the capital expenditure. This was necessitated by the bitter realities COVID-19 left the counry with. Medical equipment and facilities have long been missing from the Nigerian health sector and this budget is expected to provide some improvements if it is holistic enough.

 

2021 Budget Strategy

The federal government is looking to deregulate the oil sector with petroleum products’ prices being deregulated in an attempt to fix the subsidy on these products. This is expected to free up funds for the government with the loopholes being fixed in the subsidy issue. Nigeria was said to have lost trillions of naira in 14 years to subsidy and a deregulation may just be timely. The verification exercise of IPPIS is also a system designed to check ghost workers and pensioners on the government payroll and is expected to help create more funds.

Thirdly, there is a new electricity tariff that the government has said is service-based. This according to the FG will aid foreign investments in the power sector and make more funds available to boost other parts of the economy. The veracity of this budget will become a reality before Nigerians soon as the budget takes shape. NB: Every figure mentioned is still subject to the NASS approval.