(Greenwich Merchant Bank): The National Assembly passed the 2021 Appropriation Bill during its plenary session, barely two weeks to the end of the year, following the presentation of the 2021 budget in October. This supports the President’s commitment to sustain the January-December Budget cycle which was achieved in 2020.
This also came with the recent approval to rollover spending plans for 2020 into 2021, mainly due to the snag caused by the global pandemic. The approved budget size was shored up by NGN505.6bn from the NGN13.0tn submitted to NGN13.6tn increasing the allocation to capital expenditure (30.0% of total expenditure).
The approved budget is 25.8% higher than the revised budget of 2020. Based on the projected revenue of NGN7.9tn, the budget deficit increased to NGN5.7tn from the initial NGN5.2tn. The projections for Oil price, Oil production target, Exchange rate, and GDP growth rate were also maintained at USD40pb, 1.86MMbpd, NGN379.00/USD1.00, and 3.0%, respectively.
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When compared to the initially proposed 2021 budget, there was a 14.4% increase in Capital spending, which pegged the figure at NGN4.12bn, alongside Debt service, which was jerked up to NGN3.32tn, reflecting an upshoot of 6.27%. Some other highlights of the Bill were the; Statutory Transfers of NGN496.52bn, and the Recurrent expenditure of NGN5.64tn.
That said, revenue projections notched higher by a NGN100bn, against the backdrop of the increase in oil prices, consisting of NGN2.01tn in oil revenue and NGN1.49tn non-oil revenue, while the independent revenue and other proceeds amount to NGN4.48tn.
To place in better context, with Nigeria’s oil production capped amid the prolonged COVID-19 pandemic, and an economic slump, revenue might just remain short of its target, further exacerbating the deterioration in the country’s fiscal position this year.
As a result, fiscal deficit is expected to widen more than the estimated 3.60% of GDP, which is up 0.02% from its previous estimate of 3.40% in 2020. Offset to these downsides are the proceeds expected from borrowings (both foreign and domestic, an estimate of NGN2.01tn), privatization, and asset sale.
While we observe the upscaled budget and the expansion of the National Social Investment Programme (NGN365bn) should provide some relief to the majorly affected sectors and citizenry, fiscal consolidation proves even more difficult, as the government has little policy space to manoeuvre its huge debt load.
We also note that the coronavirus pandemic weakened the country’s earnings in the year, and the realized revenue stood at an unimpressive NGN3.31tn as of half-year, this marked a shortfall of NGN129.97bn, compared to the pro-rated figure of NGN3.44tn.
Despite an anticipated pick-up in earnings given an improvement in non-oil revenue, lingering challenges emanating from the persistently low oil prices linked to the periodic relapse of the pandemic remains a major concern.
The economy is expected to rebound after this year’s projected contraction due to the COVID-19 pandemic, though at a marginal 1.5% and 3.0% according to forecasts of the IMF and the FG.
Hence, downside risks remain tilted to the ongoing impact of the COVID-19 pandemic, shrinking employment numbers, ballooning public debt stock, and the war against insurgency in the North East.
As the country moves into the new year, resolving the nation’s fiscal challenges through further diversification and development of the non-oil sectors of the economy should remain paramount.