There is no better time than now to demand for good governance through adequate service delivery from government at all levels. The issues have become even more complicated with the crash in oil prices affecting the 2020 appropriation act and stimulating borrowing and loans from external and internal sources. At the moment Nigeria’s external debt stands at 1.5 trillion while domestic debt has already hit 6.5 trillion naira. In the midst of this, Government expects GDP to contract by 3.5% YoY in 2020. Oil earnings is now projected to decline by 90.0% in 2020, estimated net oil & gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecasted at 80.0% lower at N1.1 trillion (vs. N5.5 trillion previously), despite a N649 billion reduction in allowable fiscal deductions by NNPC for federally funded projects/expenditures. Specifically, projected PMS under-recovery has been reduced from N457 billion to zero. Oil prices expected to average $20 per barrel (vs. budget benchmark of $57 per barrel).
Similarly, Average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 per barrel (with implications for Petroleum Profit Tax. If the outbreak of COVID-19 in Nigeria continues at this pace without near hope to see a flattened curve it could magnify the impact of low oil price and weaker domestic crude production. Customs revenue is now projected at N1.2 trillion in 2020 (vs. N1.5 trillion previously), same impact applies to amount accruable to VAT pool account now forecasted at N2.0 trillion in 2020 (vs. N2.1 trillion previously). In the same vein, amount accruable to federation account now projected at N3.9 trillion (vs. N8.6 trillion previously.
Projected N5.6 trillion budget deficit to be financed through privatization proceeds (N126 billion), drawdowns from FGN Special Accounts (N260 billion), bilateral/multilateral drawdowns (N387 billion), and new borrowings amounting to N4.6 trillion. This will lead debt service pressure to be eased by significant moratoriums on new loans (IMF’s RFI of $3.4 billion comes with 3 years moratorium) and expected deferrals of current debt service obligations until macro conditions improve. What this means is that the country will need a robust fiscal plans to absorb the eminent crisis looming at the moment.
Further analysis of the 2018 and 2019 budget performance shows the same usual trend of higher recurrent spending and lower capital spending. In 2018, the federal government proposed a total budget of N9.1 trillion but appropriate just 31.5 percent of this sum to capital expenditure with recurrent taking the remaining 68.5%. However, only N3.96 trillion was generated at the end of the year, and N3.1trillion, representing 78 percent of this sum was spent on non-debt recurrent expenditure. Similarly, the 2019 federal budget was N8.8trillion with recurrent taking the lion share at N4.04trillion representing 46 percent while capital allocation got N2.031trillion representing 23 percent. Recently too, as a result of fiscal mismanagement, government expenditure on debt servicing has assumed a dangerous pattern in the past few years, gulping more than yearly capital expenditure. This trend is not limited to the federal budget alone, many states have consistently maintained a similar trend or pattern of expenditure. This is a fundamental setback to any prospect of development financing as the bulk of government resources goes into recurrent and debt financing at the expense of capital financing.
So, to achieve serious development, there is a need for governments both at national and sub-national to a progressive expenditure pattern by allocating more resources to capital expenditure considering the important role capital expenditure plays in engendering socio-economic development in the country. There is a need to increase budgetary allocation to key sectors of the economy such as education, health, infrastructure, and food sufficiency. The principle behind the Sustainable Development Goals (SDGs) requires government spending to be inclusive, far-reaching, and all-encompassing. Government’s spending should focus majorly on:
- Improving the quality of universal public education: This can be achieved by allocating at least 20% of the public budget to improve access to quality education.
- Increase Public Health Spending: There is a need to strengthen the public health sector by increasing resource allocation to the tune of 15% of the annual budget. The imperativeness of this can be seen in the current need to improve public health services as a result of the Covid-19 pandemic. The ability of a country to address such challenges in the future depends on its present spending to develop the health sector.
- Increasing investment in universal social protection programs that benefit the poor.
- Implement universal tax-base public service and intensify ongoing social intervention programs.
- The government needs to ensure the transparency of the public procurement system by providing a timely and adequate degree of transparency in each phase of the public procurement circle.
- Ensure transparency of the flow of public funds, from the beginning of the budgeting process throughout the public procurement cycle to allow stakeholders and the citizens to understand government spending priority.
- Governments at all levels should develop an inclusive public finance framework with a clear resource mobilization plan that looks beyond oil revenue. The framework should make provision for the diversification of oil revenue beyond sales of crude and other accruable rent. More importantly, there is a need for Nigeria crude products to be refined locally, and that entails ensuring holistic overhaul of the nation’s four refineries to function in full capacity and possible building of new ones. This will prevent the loss of huge resources due to crude swapping.
- The federal government should ensure the efficient management of the oil sector by ensuring the passage, assent, and functioning of the Petroleum Industry Governance Bill as well as the other components, particularly the Petroleum Industry Fiscal Bill. This will bring an end to the porous resource mobilization and management regime that dominate the oil sector. Due to obsolete laws and Memorandum of Understanding (MoU), Nigeria has not been able to harness the potential of its oil tax revenue. There is a need to review all the MoU governing Nigeria oil sector relationships and tax agreements.
- There is a need to adopt participatory budgeting systems that allow for the needs and aspirations of the citizens to be captured in the budgeting process. Active citizens’ participation at all stages of budgeting ensures open budgeting and allows for effective budget implementation.
- With improved revenue, there is a need to improve capital spending to drive real economic growth. Governments at all levels should increase public spending to develop infrastructure in education, health, and other critical sectors. This should be done as a matter of policy.
Notes to readers/editors
- Nigeria Public Finance Management Roadmap: Stakeholders Contribution. Links to be share when it goes live on the launch date.