Update on 2020 Revised Budget, MTEF and Fiscal Strategy for 2021 - 2023

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Monday, July 13, 2020 / 12:05  PM / FSDH Research / Header Image Credit: @ZShamsuna


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On Friday 10th July , the Ministry of Finance, Budget and Planning organized a virtual public consultative forum on the 2021-2023 Medium Term Expenditure Framework & Fiscal Strategy Paper. The team was led by the Honourable Minister Zainab Ahmed, and comprised of Prince Clem Agba, Minister of State and Mr. Ben Akabueze, DG Budget.

 

Below are the key highlights.

 

Changes in Key Parameters

  • The Nigerian economy faced serious macroeconomic challenges in H1 2020 and this was compounded by the disruption of economic activity by the spread of the COVID-19 pandemic.
  • Crude oil prices declined sharply in the world market, with Bonny Light crude oil price dropping from a peak of US$72.2 pb on January 7, 2020 to below US$20pb in April 2020. As a result the 2020 budget benchmark oil price of US%57 became unsustainable.
  • In response to the disruption of supply and demand as a result of COVID-19 pandemic , OPEC members and allies agreed to output cuts to stabilize the world oil market, with Nigeria contributing about 300,000 bpd of production cuts
  • The impact of these developments is about 65% decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflows into the economy.
  • In response to the developments affecting the supply of foreign exchange to the economy, the Central Bank of Nigeria (CBN) adjusted the official exchange rate to N360 per US$1

Update on 2020 Revised Budget

  • The 2020 revised budget shows an increase of N301 bn from a total of  10.5 tn to 10.81tn
  • The 2020 revised budget is based on the following  parameters are as follows: (1) Oil price benchmark at USD 28; (2) Oil production at 1.8mbpd ; (3) Exchange rate at 360/$1; (4) Inflation projection of 14% and (5) a GDP forecast of -4.42%

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Update on 2020 Budget Implementation (Jan-May)

  • Revenue performance: As at end of May 2020, FG retained revenue was N1.48tn which represents 56% of target
  • Expenditure performance: As at end May 2020, N9.97tn was appropriated, while N3.34tn was spent.
  • As at end of May 2020, only N253.33 billion had been released for capital expenditure (largely due to the budget revision exercise)

Key Assumptions & Macro-framework for 2021-2023

  • The key parameters as well as other macroeconomic projections driving the medium term-term revenue and expenditure framework have been revised in line with the emergent realities.
  • Oil GDP growth rate has a strong positive correlation with real GDP growth in Nigeria. Consequently, changes in the underlying drivers of oil GDP will significantly affect GDP performance.
  • Oil GDP is expected to contract by 12.96% in 2020, year on year, causing an economy wide drag resulting in slower growth in non-oil GDP by -3.6%, year on year. Based on this real GDP is expected to decline by 4.2% in 2020.
  • EIA expects Brent crude oil prices to average $41 pb during the second half of 2020 and $50 pb during 2021, reaching %53 pb by end 2021. The FG  oil benchmark price of US$ 40 is assumed for 2021-2023
  • Although Nigeria's total production capacity is 2.5mbpd, current production is about 1.4mbpd (in compliance with the OPEC+ production quota)
  • Exchange rate of $360 is assumed for the medium-term
  • Inflation is expected to remain above single digit in the medium term mainly due to high cost of doing business and high cost of food distribution, inflation rate of 11.9% for 2021; 10.9% for 2022 and 11% for 2023

Overview of the 2021-2023 MTEF : FG 2021 outlook

  • Fiscal Deficit for 2021 is N5.16tn
  • FG revenue projected from available sources for 2021 is N6.98tn
  • FG expenditures projected for 2021 is N11.86tn

The 2021 Budget is being framed against the backdrop of a challenging global macroeconomic environment as well as domestic factors. FG aims to keep the deficit within the 3% ceiling over the medium term, and are therefore working on identifying new revenue sources and/or cost reductions.


Conclusion

  • The FG will accelerate the implementation of the revised 2020 budget to maintain budget process credibility, enhance GDP growth and promote social inclusion
  • The draft 2021-2023 MTEF/FSP has been prepared against the backdrop of heightened global economic uncertainity
  • The draft 2021-2023 MTEF shows that there are continuing global challenges due to the COVID-19 pandemic
  • Nigeria faces significant medium-term fiscal challenges , especially with respect to revenues
  • Achieving fiscal sustainability and macro-fiscal objectives if government will require bold, decisive and urgent action. Government is determined to act as may be required.

Download Here The Public Consultation Presentation: 2020 Revised Budget and MTEF and Fiscal Strategy for 2021 - 2023


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