Nigeria’s President Muhammadu Buhari signed the 2018 Federal Budget on June 21st, 2018. The signed 2018 budget has a value of N9,120 billion, a 23.6% increase from the N7,441 billion budget signed in 2017.
Nigeria’s Federal Budget is mainly divided into recurrent and non-recurrent (net debt) expenditure. Recurrent (non-debt) spending is expected to rise by 17%, from N2.99 trillion in FY2017 to N3.51 trillion. Capital expenditure (excluding transfers) is higher by 22% from N2.36 trillion in FY2017 to N2.87 trillion.
This is perhaps the most disappointing passage of the Federal Budget in recent years. From back in November when it was submitted to the National Assembly by the Presidency, it has been embroiled in controversies such as accusations of padding, government officials’ adamant refusal to defend the budget in committee sessions, and several other collateral delays.
Now that the budget has been signed, Nigerians can breathe a sigh of relief and hope that budget expenditure can help spur growth in the economy. It is by far the highest budget ever passed by any government in the history of Nigeria and promises rapid infrastructural development.
Unfortunately, this budget is far from perfect as it includes a lot of red flags. Red flags that make you wonder just how this government can salvage anything from 4 years of managing the economy in an arguably disappointing manner.
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Let’s take a look at some of the projections in this budget that suggest it may be flawed:
GDP 3.5% – Like last year, the government aggressively factored in a GDP growth rate of 3.5% for the year ended December 2018. Just last month, the IMF forecasted a 2.1% GDP growth rate for Nigeria in 2018. In 2017, the government projected a GDP growth rate of 1.5% only for Nigeria to close at 0.83% at the end of 2017. GDP growth rate is an important ingredient in the budget process as it is relied upon in determining how much tax revenue the country can earn in real time.
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Daily Output – In 2017, the Federal Government forecasted a daily crude oil production of 2.2 million barrels per day. By the end of the year, Nigeria averaged just 1.86 million barrels per day. In 2018, the same government is forecasting 2.3 million barrels per day in crude oil production. In the whole of 2017, oil production crossed 2 million barrels per day only once and that was in July 2017. In fact, Nigeria hasn’t hit more than 2.2 million barrels of oil per day in nearly a decade.
Revenue – Another major red flag in this year’s budget is the government’s revenue projection. This year, the government projected a revenue target of N7.1 trillion, a whopping 41% higher than the N5 trillion budgeted for in 2017. Difference is that they were projected at an oil price of $51 and output of 2.3mbpd compared to $44.5 and 2.2mbpd in 2017 respectively.
The projection may seem reasonable on the back of these assumptions, but when you consider that the government only earned N2.7 trillion out of the N5 trillion budgeted for in 2017, then you might want to taper down your expectation. It is highly unlikely that they will meet this revenue projection despite oil prices averaging about $65 this year.
Debt service – Another red flag in the 2018 budget is the amount allocated by the government for debt servicing. To pay down loans and interest borrowed by the government, Nigeria will have to shell out about N2 trillion this year compared to N1.6 trillion in 2017. Nigeria’s debt service is also now a whopping 71.4% of capital expenditure — one of the highest we have seen in years.
Recurrent Expenditure vs Capital Expenditure – As mentioned earlier, Nigeria’s budget is divided mainly into recurrent and capital expenditure. Successive governments over the years have aimed at achieving higher levels of capital expenditure as percentages of recurrent expenditure.
To be fair, this government has increased capital expenditure far more than any other government in recent times. In 2018, Capital Expenditure as a percentage of Non-Debt Expenditure was 81.68% compared to 42.17% in 2017 — a significant improvement, as the government will make you believe. But on closer look and relying on actual figures, Capital Expenditure rose by N512 billion year on year, while Recurrent (non-debt) Expenditure rose by N522 billion.
Other spurious provisions – The government said that it plans to spend about N500 billion for FGN Special Intervention Programmes (including Home Grown School Feeding Programme, Government Economic Empowerment Programme, N-Power Job Creation Programme, Conditional Cash Transfers, etc). This is understandably a project dear to the heart of the president.
Unfortunately, it is nearly 17.8% of the total amount budgeted for Capital Expenditure alone. This money will be paid directly to some of the poorest people in the country and the government also aims to use it to create jobs. Unfortunately, since this policy began in 2016, Nigeria’s unemployment rate has only worsened. It has risen from 8.2% to 18.2% under this government.