Friday, March 22
2019 / 12:46
PM / by BudgIT
Here Comes the Post-election Budget
On December 12, 2018, the President of the Federal Republic of Nigeria, Muhammadu Buhari presented the proposed budget of the Federal Government of Nigeria for the fiscal year of 2019 to a joint session of the National Assembly. The federal government proposes to spend a total of N8.83 trillion; a figure lower than the current fiscal year’s budget by N300 billion.
In 2018, the president signed into law a budget of N9.12 trillion, which was a 6% (N508 billion) increase from the N8.61 trillion proposed to lawmakers in 2017. Also, the amount allocated for statutory authorities including the National Assembly was put at N492.36 billion, which is lower than the N530 billion figure set aside in 2018. The figure earmarked for the sinking funds component of the proposed budget was set as N120 billion; a figure which according to the president will be used in retiring maturing bonds to local contractors.
With regards to servicing of debt, the federal government is proposing to spend N2.14 trillion for debt servicing with 80% of this amount set aside for servicing its domestic debt component which overall accounts for about 70% of its total debt portfolio.
FG Expects N710bn from Sale of Equity in Joint Ventures
The proposed federal government budget is anchored around revenue projections of N6.97 trillion for the 2019 fiscal year. From the oil sector, the federal government is expecting a revenue of about N3.73 trillion, while N710 billion will come from the proceeds of government equity in Joint Ventures.
As part of the government’s non-oil revenue push, it anticipates to receive about N799.52 billion from businesses as part of its own share of company income tax receipt. Also, the federal government’s share of revenue from custom duties and Value Added Tax(VAT) is estimated to come to a region of N302.5 billion and N229.34 billion respectively.
Furthermore, the independent revenue of the government is expected to contribute about N624.58 billion to the overall revenue projections for the 2019 fiscal year. The federal government’s proposed total expenditure for 2019 is projected to be close to N8.83 trillion, which includes donor funds and grants amounting to about N209.92 billion.
The proposed budget is lower when compared to the total expenditure figure in the approved budget for the 2018 fiscal year of N9.12tn. The recurrent component of the proposed budget is projected to be about N6.18tn trillion while N2.03 trillion has been earmarked for capital expenditure and projects.
Key Elements Of 2019 Proposed Budget
The proposed budget for the 2019 fiscal year as presented by the president for approval to the National Assembly is based on a number of key assumptions/projections. These key assumptions are;
Oil Revenue - 2019 Oil Revenue Projection: N3.73tn
Oil Contribution to the Revenue Matrix Expected to Swell
According to the proposed budget of the 2019 fiscal year, the federal government projects about N3.73 trillion as oil revenues. This figure was derived from two presumptions; first, that in the year, oil will sell at a projected US$60 per barrel; second, that oil production will hit 2.3 million barrels per day. Daily crude oil production estimate of 2.3 million barrels per day is the same amount as budgeted for the 2018 fiscal year.
However, Nigeria currently produces about 1.8million barrels per day, which according to some experts in the oil sector, is believed to be a more realistic production estimate. We see some of the projections as overly optimistic.
Due to the need to boost oil prices across the globe, the Organization of Petroleum Exporting Countries (OPEC) has capped Nigeria’s oil output at 1.685m barrels per day, a limit that Nigeria has breached in recent months. The on-boarded Egina oil platform meant to provide over 200,000 barrels per day at full production also makes this target nearly impossible for Nigeria.
Nigeria has long argued that its oil production includes a 400,000 barrels of condensate, a lighter version of oil that OPEC does not count among its cuts. A realistic target with the Egina oil production is that it might hit 2m barrels per day in 2019, which includes condensate production.
The contribution of oil to government revenues has slipped from its peak in the early 2000’s to the low price since 2014; this significantly weakened Nigeria’s revenue position. Oil’s contribution is expected to increase as Q3 2018 figure shows that oil revenues contributed 50% to the federation account. FG’s share of oil receipts has grown from N1.13tn in FY2017 to N1.433tn as at Q3 2018.
The oil benchmark price has also been revised upward from the approved. With oil price pegged at US$60, the crude oil benchmark price increased from US$51 per barrel as contained in the approved 2018 budget.
This remains a key factor when considering the proposed budget due to the fact that the bulk of the revenue expected by the federal government is still derived from the oil sector.
Since the start of 2019, oil price has oscillated between $61 to $66 per barrel, showing that the current reference price might be on the edge, leaving almost nothing to add to the Excess Crude Account, now less than $300m.
However, this huge reliance on the oil sector as the main revenue source will, on the long run, places a huge strain on economy due to fluctuating international oil prices and the gradual move away from fossil fuels by Europe and the rest of the world.
As such, efforts should be made to shift Nigeria’s economy from its over-reliance on oil revenues. In 2017, the average crude oil price was about US$54.15 per barrel, which was higher than the approved budget benchmarked price of US$44.5 per barrel; actual oil production also in the same fiscal year averaged 1.86 million barrels per day while the budget benchmark of 2.2 million barrels per day was lower by 15.45 per cent.
In 2018, particularly the second quarter of the fiscal year, price of crude oil at the international market averaged US$74.35 per barrel which indicated an increase of about 45.78 per cent above the 2018 fiscal year budget benchmarked price set at US$51.0 per barrel.
Nigeria's non-oil revenue is mainly divided into Value Added Tax , Corporate Income Tax, customs duties and levies. FG receives 14% of the Value Added Taxes, while other taxes are paid into the Federation Account, which FG is entitled to 48.5%. Nigeria’s non-oil r e v e n u e ( e x c l u d e s independent revenues from agencies by classification) has usually followed the GDP growth and the economic health of the country.
As Oluseun Onigbinde notes “As oil price and production swings have been critical to Nigeria's economic growth, foreign reserves and currency stability, non-oil revenue growth has also been strongly influenced by oil. It is evident that when oil revenue declined in 2016 due to the oil price slump, the growth of non-oil revenue marginally reversed.
We see this in the change in Company Income Tax revenue—N1.2 trillion in 2014, N1.0 trillion in 2015, N0.9 trillion in 2016, and back to N1.2 trillion in 2017.” After the slump in non-oil revenues in 2016, in the throes of the recession, non-oil revenues are on an upward swing from 2017.