Processes for 2021 fiscal budget have commenced in earnest. The Federal Executive Council last week approved MTEF/ FSP in which government projected a revenue sum of N7.50 trillion with alternative revenue sources outside the norm of budget funding included. Isa Abdulwahab reports
In keeping faith with the administration’s policy of January to December budget calendar circle, the fiscal authorities, a fortnight ago, presented the Medium Term Expenditure Framework / / Fiscal Strategy Paper MTEF/ FSP (2021-2023). The yearly ritual presentation, this time, was undertaken amid very challenging period. It held during a testing period, a time government is searching for revenue that appears to be no wherr. The outbreak of coronavirus pandemic this year has inflicted immeasurable damage to government’s provisions originally captured in N10.5 trillion 2020 budget.
Those provisions captured in the 2020 budget were not only re- jigged and reviewed, in some instances, key items were halted due to paucity of funds for their implementation. The nation’s main traditional revenue source for implementing budget, crude oil, suffered massive plunge at about same time COVID-19 struck. As of March 2020, the nation’s prime asset for budget finance crashed to less than $20 a barrel against budget forecast price of $57. The pandemic’s impact on the economy, which summarily froze all economic activities and crashed crude price, put government’s finance sources in a fix.
Notwithstanding the acute revenue challenges, government said it implemented 2020 budget to its best. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said Federal Government implemented 2020 budget (capital component) to the tune of N995.665 billion (capital expenditure) out of N1.347 trillion appropriated for capital expenditure in the 2020 revised budget. The government hasn’t defaulted on its recurrent expenditure obligations, the minister reiterated. Salaries and overheads are being paid during the lockdown induced by the pandemic.
Revenue challenge and 2021 budget
Process leading to 2021 budget is already on track. Ministry of Finance, Budget and National Planning kicked off the process a fortnight ago with the presentation of MTEF/ Fiscal Strategy Paper of N12.66 trillion. The document has been approved by Federal Executive Council, FEC. For 2021, MTEF/ FSP projections include $40 per barrel oil benchmark, oil production volume of 1.6 million barrel per day, inflation rate of 11.9 per cent, projected gross domestic growth rate of three per cent and revenue target of N7.50 trillion.
Ahmed admitted paucity of fund confronts the government. She underscored enormous revenue challenge facing government occasioned by plunge in crude oil price and COVID- 19 crisis. To mitigate this, she said government would ramp up all sources of revenue open to it including but not limited to all revenue generating agencies that must remit their surpluses to the consolidated revenue account. She said government was determined to deplore all resources and managerial expertise at its disposal to prevent the economy from sliding into recession, adding that “in the event that we will go into recession, it would be a shallow recession. “In 2021, we will reflect revenue and expenditure of all generating revenue agencies not just the top ten with exception of Nigeria National Petroleum Corporation (NNPC).”
For 2021, the minister noted that “although Nigeria’s total production capacity is 2.5 mbpd, current crude production is about 1.4mbpd (in compliance with the OPEC+ production quota), and an additional 300,000bpd of condensates, totaling about 1.7mbpd. World Bank forecasts that crude oil prices will rise gradually from an average of $42 pb in 2021 to $44.5 pb in 2022, and $47 pb in 2023. However, oil price is projected to remain low and volatile in 2020, and Nigeria’s compliance with the OPEC+ cuts by reducing base production to between 1.412 mbpd and 1.579 mbpd from June to end of 2020.
What are new incremental revenue sources?
The Federal Government admitted reduction in her revenue scope is a cause for concern. As alternative, it said it had identified oil and non-oil initiatives that could help the country generate between N13 trllion and N18 trillion and achieve its 15 per cent revenue to Gross Domestic Product target. It also stated that states would need to generate N3.4 trillion to realise this, adding that the COVID-19 had brought to the fore the need and urgency to further diversify the sources of government revenue.
Ahmed said the Strategic Revenue Growth Initiative of government inaugurated last year would help the in achieving this revenue growth target. Ahmed spoke during a webinar that focused on leveraging data to drive inclusive policy, revenue generation and improved governance. She noted that the pandemic and crash in crude oil price had drastically impacted on government’s revenue, but explained that the Federal Government had been adopting several measures to tackle the challenge.
She said: “Under the SRGI, therefore, we have identified various revenue initiatives that could potentially generate N13 trillion to N18 trillion across both oil and non-oil sources, and ensuring that we are able to achieve a 15 per cent revenue to GDP target by 2023. “Importantly, we recognised that the support of states would be necessary to achieve the 15 per cent target.
In fact, the states would need to cumulatively generate about N3.4 trillion. “Analysis of revenue data shows that as at 2018, Nigeria’s revenue to GDP ratio stood at about eight per cent, significantly below many comparator countries on the continent, as well as the continent average.” She said the economy faced serious challenges in the first half of 2020, seeing about 65 per cent decline in projected net 2020 government revenues from the oil and gas sector, with adverse consequences for foreign exchange inflows. Ahmed said government’s anticipation was that these challenges would continue into the third quarter of this year. For 2021, Federal Government set ambitious revenue target of N7.50 tril-lion compared to revenue projection of N5.84 trillion in 2020.
With crude oil and other sources of revenue shrinking, the Federal Government is banking on Value Added Tax (VAT), Stamp Duty and others to finance the 2021 budget. It put capital expectation of N1.7 trillion from Value Added Tax (VAT) and N500 billion to be realised from Stamp Duty implementation. For VAT, government is optimistic by bringing more people into the tax net with the effective implementation of the provisions of the Finance Act 2019 and improving collection efficiency. The VAT projections over the medium-term are based on holding the rate at 7.5 per cent.
The government is convinced that that wider coverage and improved collection efficiency will be achieved through continuous nationwide VAT registration and monitoring, as well as the use of technology for auto-collect platforms in more sectors of the economy. Besides, the solution to deduct and remit VAT and WHT from state government contract payments is to be deployed to all the 36 states. With regard to Stamp Duty collection, the Federal Government projected N500 billion revenue in 2021 budget. Besides the ramping up of additional revenue from new sources to bolster existing ones, government said it would be strict with enforcing cost saving polices and plugging of revenue leaks.
Explicitly stated, budget 2021, like 2020 fiscal budget, is going to be challenging. To achieve fiscal sustainability and macro-fiscal objectives, government has identified potential revenue sources from non-oil sector to drive the plan.