Budget of sustaining growth and job creation

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I am delighted to present the 2020 Federal Budget Proposals to this Joint Session of the National Assembly, being my first budget presentation to this 9th National Assembly.

Before presenting the Budget, let me thank all of you Distinguished and Honourable Members of the National Assembly, for your avowed commitment to cooperate with the Executive to accelerate the pace of our socio-economic development and enhance the welfare of our people.

I will also once again thank all Nigerians, who have demonstrated confidence in our ability to deliver on our socio-economic development agenda, by re-electing this administration with a mandate to Continue the Change. We remain resolutely committed to the actualization of our vision of a bright and prosperous future for all Nigerians.

During this address, I will present highlights of our budget proposals for the next fiscal year. The Honourable Minister of Finance, Budget and National Planning will provide full details of these proposals, subsequently.

OVERVIEW OF ECONOMIC DEVELOPMENTS IN 2019

The economic environment remains very challenging, globally. The International Monetary Fund (IMF) expects global economic recovery to slow down from 3.6 per cent in 2018 to 3.5 per cent in 2020. This reflects uncertainties arising from security and trade tensions with attendant implications on commodity price volatility.

Nearer to home, however, Sub-Saharan Africa is projected to continue to grow from 3.1 per cent in 2018 to 3.6 per cent in 2020. This is driven by investor confidence, oil production recovery in key exporting countries, sustained strong agricultural production as well as public investment in non-dependent economies.

Mr. Senate President; Right Honourable Speaker; I am pleased to report that the Nigerian economy thus far has recorded nine consecutive quarters of GDP growth. Annual growth increased from 0.82 percent in 2017 to 1.93 percent in 2018, and 2.02 percent in the first half of 2019. The continuous recovery reflects our economy’s resilience and gives credence to the effectiveness of our economic policies thus far.

We also succeeded in significantly reducing inflation from a peak of 18.72 percent in January 2017, to 11.02 percent by August 2019. This was achieved through effective fiscal and monetary policy coordination, exchange rate stability and sensible management of our foreign exchange.

We have sustained accretion to our external reserves, which have risen fromUS$23 billion in October 2016 to about US$42.5 billion by August 2019. The increase is largely due to favourable prices of crude oil in the international market, minimal disruption of crude oil production given the stable security situation in the Niger Delta region and our import substitution drive, especially in key commodities.

The foreign exchange market has also remained stable due to the effective implementation of the Central Bank’s interventions to restore liquidity, improve access and discourage currency speculation. Special windows were created that enabled small businesses, investors and importers in priority economic sectors to have timely access to foreign exchange.

Furthermore, as a sign of increased investor confidence in our economy, there were remarkable inflows of foreign capital in the second quarter of 2019. The total value of capital imported into Nigeria increased from US$12 billion in the first half year of 2018 to US$14 billion for the same period in 2019.

PERFORMANCE OF THE 2019 BUDGET

Distinguished and Honourable Members of the National Assembly, you will recall that the 2019 ‘Budget of Continuity’ was based on a benchmark oil price of US$60 per barrel, oil production of 2.3 mbpd, and an exchange rate of N305 to the United States Dollar. Based on these parameters, we projected a deficit of N1.918 trillion or 1.37 percent of Gross Domestic Product.

As at June 2019, Federal Government’s actual aggregate revenue (excluding Government-Owned Enterprises) was N2.04 trillion. This revenue performance is only 58 percent of the 2019 Budget’s target due to the underperformance of both oil and non-oil revenue sources. Specifically, oil revenues were below target by 49 percent as at June 2019. This reflects the lower-than-projected oil production, deductions for cost under-recovery on supply of premium motor spirit (PMS), as well as higher expenditures on pipeline security/maintenance and Frontier exploration.

Daily oil production averaged 1.86 mbpd as at June 2019, as against the estimated 2.3 mbpd that was assumed. This shortfall was partly offset as the market price of Bonny Light crude oil averaged US$67.20 per barrel which was higher than the benchmark price of US$60.

Additionally, revenue projections from restructuring of Joint Venture Oil and Gas assets and enactment of new fiscal terms for Production Sharing Contracts did not materialize, as the enabling legislation for these reforms is yet to be passed into law.

The performance of non-oil taxes and independent revenues such as internally generated revenues were N614.57 billion and N217.84 billion, respectively.

Receipts from Value Added Tax were below expectations due to lower levels of activities in certain economic sectors, in the aftermath of national elections. Corporate taxes were affected by the seasonality of collections, which tend to peak in the second half of the calendar year.

On the expenditure side, 2019 Budget implementation was also hindered by the combination of delay in its approval and the underperformance of revenue collections. As such, only recurrent expenditure items have been implemented substantially. Of the prorated expenditure of N4.46 trillion budgeted, N3.39 trillion had been spent by June 30, 2019.

In compliance with the provisions of the 2018 Appropriation Act, we implemented the 2018 capital budget till June 2019. Capital releases under the 2019 Budget commenced in the third quarter. As at 30th September 2019, a total of about N294.63 billion had been released for capital projects. I have directed the Ministry of Finance, Budget and National Planning to release an additional N600 billion of the 2019 capital budget by the end of the year.

Despite the delay in capital releases, a deficit of N1.35 trillion was recorded at end of June 2019. This represents 70 percent of the budgeted deficit for the full year.

Despite these anomalies, I am happy to report that we met our debt service obligations, we are current on staff salaries and overhead costs have also been largely covered.

 

2020 BUDGET PRIORITIES

Distinguished Senators, Honourable Members, let me now turn to the 2020 Appropriation, which is designed to be a budget of:

  1. Fiscal consolidation, to strengthen our macroeconomic environment;
  2. Investing in critical infrastructure, human capital development and enabling institutions, especially in key job creating sectors;
  3. Incentivising private sector investment essential to complement the Government’s development plans, policies and programmes; and
  4. Enhancing our social investment programs to further deepen their impact on those marginalised and most vulnerable Nigerians.

 

PARAMETERS & FISCAL ASSUMPTIONS UNDERPINNING THE APPROPRIATION BILL AND THE FINANCE BILL

Distinguished and Honourable Members of the National Assembly, the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) set out the parameters for the 2020 Budget. We have adopted a conservative oil price benchmark of US$57 per barrel, daily oil production estimate of 2.18 mbpd and an exchange rate of N305 per US Dollar for 2020.

We expect enhanced real GDP growth of 2.93% in 2020, driven largely by non-oil output, as economic diversification accelerates, and the enabling business environment improves. However, inflation is expected to remain slightly above single digits in 2020.

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 laws. These objectives are:

  1. Promoting fiscal equity by mitigating instances of regressive taxation;
  2. Reforming domestic tax laws to align with global best practices;
  3. Introducing tax incentives for investments in infrastructure and capital markets;
  4. Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and
  5. Raising Revenues for Government.

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% 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 expands the exempt items to include the following:

  1. Brown and white bread;
  2. Cereals including maize, rice, wheat, millet, barley and sorghum;
  3. Fish of all kinds;
  4. Flour and starch meals;
  5. Fruits, nuts, pulses and vegetables of various kinds;
  6. Roots such as yam, cocoyam, sweet and Irish potatoes;
  7. Meat and poultry products including eggs;
  8. Milk;
  9. Salt and herbs of various kinds; and
  10. Natural water and table water.

Additionally, our proposals also raise the threshold for VAT registration to N25 million in turnover per annum, such that the revenue authorities can focus their compliance efforts on larger businesses thereby bringing relief for our Micro, Small and Medium-sized businesses.

It is absolutely essential to intensify our revenue generation efforts. That said, this 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.

 

FEDERAL GOVERNMENT REVENUE ESTIMATES

The sum of N8.155 trillion is estimated as the total Federal Government 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 7 percent higher than the 2019 comparative estimate of N7.594 trillion inclusive of the Government Owned Enterprises.

The increasing share of non-oil revenues underscores our confidence in our revenue diversification strategies, going forward. Furthermore, in our efforts to enhance transparency and accountability, we shall continue our strict implementation of Treasury Single Account (TSA) to capture the domiciliary accounts in our foreign missions and those linked to Government Owned Enterprises.

 

PLANNED 2020 EXPENDITURE

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.

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