The Nigerian government in an ambitious economic recovery and sustainability agenda has proposed a N13.08 trillion appropriation budget for the year 2021, indicating a 23.3% from the N10.8 trillion budget approved in 2020.
Meanwhile, according to the budget breakdown, a sum of N3.12 trillion has been budgeted to service debt in 2021, representing a 9.09% rise when compared to N2.86 trillion approved for 2020.
According to the budget speech made by President Muhammadu Buhari, the 2021 Appropriation Bill is designed to further deliver on the goals of the Economic Sustainability Plan (ESC), with a roadmap to initiate post-corona economic recovery.
The breakdown shows that the capital expenditure as a percentage of Non-Debt Expenditure is a meagre 29%, while recurrent expenditure (salaries and overhead) as a percentage of total FGN expenditure stood at 71%.
Nigeria to borrow N4.28 trillion to fund budget deficit
The breakdown of the 2021 appropriation budget shows that due to persisting revenue challenge in the country, the total budget deficit rose to N5.19 trillion from N4.97 trillion approved in 2020.
According to the proposed budget, the 2021 budget deficit will be financed majorly by another borrowing of N4.28 trillion from both domestic and foreign sources. Domestic borrowing is estimated at N2.18 trillion, while external debt borrowing has been put at N940.89 billion, with sinking fund to pay off maturing bonds issued to local contractors and creditors put at N220 billion.
Other sources include N205.15 billion from privatization proceeds and N709.69 billion drawdowns on multilateral and bilateral loans secured for specific projects and programmes.
While the 2021 proposed budget appropriation will be largely funded by new borrowing, the attendant cost of borrowing new funds takes a sheer part of the total budget. For 2021, the Nigerian government is committed to meet debt service obligations, amounting to N3.12 trillion. This represents 40% of the total budget and an increase of N445.57 billion from N2.68 debt service in 2020.
The implementation of 2020 budget has largely been undermined by the outbreak of COVID-19 pandemic, driving the government to set a N13.08 trillion 2021 budget. Meanwhile, the proposed 2021 budget maybe an ambitious one to say the least, as key pressure points on Nigeria’s fiscal landscape persist.
A glance at the key parameters underlying the 2021 budget shows that the federal government may be overly ambitious in its drive to initiate the recovery process by 2021. For instance, the government projected the Nigerian economy to bottom out of recession and produce a GDP growth of 3.2% in 2021. Indeed, this may be overly ambitious in an economy already stretched by COVID-19 pandemic amidst a looming recession.
In addition, budget deficit continues to snowball, projected to be N5.19 trillion in 2021. This represents 3.62% of estimated GDP, well above the threshold of 3% stipulated in the Fiscal Responsibility Act (FRA), 2007. Unless there are new revenue sources for the country, given the limited scope for cost-cutting, it will not be feasible to keep budget deficits within the 3% target set in the Fiscal Responsibility Act 2007.
Lastly, revenue generation remains government’s main challenge. Despite key revenue management measures introduced in the 2021 budget, which includes deregulation of the price of petroleum products; ongoing verification exercise with IPPIS, and implementation of service-based electricity tariffs; the implementation of the 2021 budget may largely be threatened by the persisting weak global oil price.
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