President Muhammadu Buhari provided a sneak peek into Nigeria’s fiscal direction for 2019 on Wednesday, 19 December 2018, as he presented the 2019 Budget of the Federal Government of Nigeria (FGN) to the joint session of the National Assembly. The FGN’s 2019 Budget is intended to continue Nigeria’s quest for inclusive growth, economic diversification and sustainable development.
The policy thrust of the 2019 Budget is tied to the objectives of the country’s Economic Recovery and Growth Plan (ERGP), which rests on the tripod of growth restoration, investment in people through various social investment programmes and building a globally competitive economy by focusing on critical infrastructure.
The 2019 Budget which flows from the 2019-2021 Medium-Term Expenditure Framework (MTEF) showed projected aggregate expenditure of ₦8.83 trillion, expected revenue of ₦6.97 trillion and a deficit of ₦1.86 trillion. The planned expenditure for 2019 is lower than the approved 2018 Appropriation Act figure of ₦9.12 trillion by 3% but higher than the estimate of ₦8.6 trillion contained in the President’s initial submission to the National Assembly. The expected revenue of ₦6.97 trillion for 2019 is also lower than the approved 2018 budget of ₦7.17 trillion by 3% but higher than ₦6.6 trillion contained in the Appropriation Bill initially submitted by the President.
Key assumptions
The budgeted daily crude oil production and exchange rate contained in 2019 Budget remained the same as in the approved prior year’s Budget at 2.3 million barrels per day and N305/$, respectively.
However, the benchmark oil price is put at $60 per barrel, up from the $51 per barrel approved for 2018. GDP growth is projected at 3.01% compared with 3.5% in prior year, while the inflation rate is projected at 9.98%.
With the volatility in oil prices and the current downward trend being experienced, the benchmark oil price appears optimistic. It will also be a tough task to actualise planned daily oil production of 2.3 million barrels per day in an election year considering that actual daily oil production in 2018 as at the end of third quarter was 1.95 million barrels per day.
Key takeaways
- As Nigeria prepares for a general election in February 2019 and judging by the precedence of delayed passage of the budget in the last two appropriation cycles, the success of this transition budget rests solely on how the Executive and Legislative bodies collaborate in the overriding national interest. It is not in the overall interest of the fledgeling economy for the country to experience a repeat of 2018 where the Budget was approved at mid-year. There is a sense of urgency required in building on the recovery of the economy and sustaining growth.
- Improving the country’s revenue remains a top priority as the revenue sources are underperforming, particularly the non-oil sources and contributions from state-owned The 2019 Budget showed oil revenue accounting for 54%, while non-oil revenue sources account for 46%. With the downward trend in oil prices and the general volatility associated with commodity prices, the outlook for 2019 portends great concerns. As at the third quarter of 2018, actual aggregate revenue was ₦2.84 trillion, representing 40% of the planned annual revenue of ₦7.17 trillion for the year. It is expected that the total performance at the end of the year will improve as other outstanding revenue items from one-off sources are realised.
- About one-third of the estimated revenue or 26% of total expenditure for 2019 will be applied to debt servicing, including sinking fund. Non-recurrent expenditure continues to take the lion share as salaries, overheads and other recurrent items account for 46% of total expenditure. Statutory transfers account for 6% of total outlay, while capital expenditure, excluding items captured under statutory transfers, account for 23%. Whilst the pain of disproportionate allocation for capital projects remains, the fact that capital plans are rarely fully implemented compounds the woes. For example, out of the total capital expenditure of ₦2.87 trillion planned for 2018, total releases as at mid-December 2018 stood at ₦820 billion. Unfunded projects at the end of the year are expected to be rolled into 2019 plans.
Overall, the greatest concern remains the level of implementation that will be achieved. It is expected that the 2019 Budget will be given accelerated consideration by the National Assembly and that both the Executive and Legislative bodies will continue to collaborate in the overall national interest.