By Emeka Anaeto, Business Editor & Peter Egwuatu

There are indications that the country’s Debt Servicing-to-Revenue Ratio, DSRR, may worsen in 2019 following the plan to sustain borrowing in the new fiscal year.

CBN Governor, Mr. Godwin Emefiele

With Nigeria’s overall budget deficit proposal of N1.859 trillion in 2019 fiscal year, the federal government has disclosed that it would finance the short fall in revenue mainly by domestic and foreign borrowing, which is put at a total of N1.649 trillion.

This will take the country’s total debt to N24 trillion. At present N22.4 trillion total debt, the DSRR is put at about 66 percent.
The additional borrowing is expected to push the ratio beyond 70 percent as the government struggles to improve domestic revenue from taxes and remittances from government enterprises.

Amidst this pressure the government is required to increase its debt servicing obligation to N2.4 trillion in 2019 from N2.0 trillion in 2018.
The breakdown of the new borrowings, according to the budget proposal submitted by the President Muhammadu Buhari on Wednesday to the National Assembly showed that domestic borrowing sources stood at N824.82 billion, while foreign sources (gradual shift away from commercial to more concessionary financing) stood N824.82 billion.

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Following Nigeria’s overall budget deficit proposal of N1.859 trillion in 2019 fiscal year, the federal government has disclosed that it would finance the short fall in revenue mainly by domestic and foreign borrowing, which is put at a total of N1.649 trillion.
The remaining balance of N210 billion budget deficits is expected to be financed from the privatisation proceeds of the sale of government-owned enterprises.

In the public presentation of the 2019 budget proposal, Senator Udoma Udo Udoma, Minister of Budget & National Planning, revealed that the federal government has projected that out of the total revenue of N6.966.99 billion, the share oil revenue stood at N3.688.28 billion and non oil stood at N1385.54 billion while other sources stood at N1.893.17 billion.

The 2019 budget has been benchmarked with oil production volume of 2.3 mbpd at $60/barrel with an Exchange rate of N305/$.

Meanwhile, reacting to the 2019 budget proposal, a capital market analyst and Managing Director, APT Securities & Funds Limitd, Mr Garba Kurfi said: “I agreed with their forecast in view of the fact that since our Q4 ended Dec., 2017 growth of 2.0 percent declined to 1.9 percent for Q1 ended 31st March 2018 to 1.5 percent by end June, 2018 for the three consecutive quarter is not unlikely the trend may continue that will affect the year-end 2018, coupled with the late signing of the budget and the absence of economic measure to accelerate the economy.

The bench price of $60 per barrel is not only on the high side but to estimate a production of 2.3m per barrel is not realistic in view the decision of OPEC to cut production and Nigeria is not exempted. The failure of any of the issue either less production or lower will bring failure to execute the budget as estimated. It is our view that the prepared budget was over ambitious.”

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Meanwhile, the Minister explained that notwithstanding the recent softening in international oil prices, the considered view of most reputable oil industry analysts is that the downward trend in recent months is not necessarily reflective of the outlook for 2019.

However, he said: “We will closely monitor the situation and will respond to any changes in the international oil price outlook for 2019. ª% Mr. President has directed the NNPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day.”
Meanwhile, the 2019 Budget proposal seeks to continue the reflationary and consolidation policies of the 2017 and 2018 Budgets respectively, which helped put the economy back on the path of growth.

On the expenditure side, allocations to Ministries, Departments and Agencies (MDAs) of Government were guided by the 3 core objectives of the ERGP, which are, (i) Restoring and Sustaining Growth; (ii) Investing in our People and (iii) Building a Globally Competitive Economy. As with 2016, 2017 and 2018 Budgets, the 2019 Budget has been prepared on the Zero Based Budget (ZBB) Principles.

Udoma further stated that the 2019-2021 Medium Term Fiscal Framework (MTFF), Medium Term Sector Strategies and proposed 2019 Budget reflect many of the reforms and initiatives in the ERGP, which is the roadmap to economic recovery and a more sustainable growth, adding that projects are linked to government policies and overarching strategic priorities.

Zainab Ahmed

The top 12 MDA Capital Expenditure Allocations in the 2019 budget shows that Federal Ministry of Power, Works & Housing had the highest allocation with N408 billion followed by Federal Ministry of Transportation N194.24 billion , while Ministry of Defence stood at N 158.12 billion.

In his explanation, Udoma said: “We have allocated N2.28 trillion for capital spending, inclusive of capital in statutory transfers. For comprehensiveness and transparency, the expenditure plans of the top 9 Government Owned Enterprises, GOEs, as well as Multi-lateral and Bi-lateral project-tied loans have been integrated into the 2019 – 2021 Medium Term Fiscal Framework. With the inclusion of N275.88 billion representing capital for the top-nine GOEs and N556.02 billion for Multi-lateral/Bi-lateral project-tied loans, the aggregate capital budget is N3.12 trillion.

This represents 30 percent of the total FGN proposed expenditure for 2019. In order to get full value for monies expended by the Government over time and to avoid duplication and waste, our emphasis will continue to be on completion of existing projects. Accordingly, provisions have been made to carry over projects that are not likely to be fully funded under the 2018 budget to the 2019 capital budget.”

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While highlighting on the 2019 budget revenue proposals, he stated that distribution of expected FGN revenue are as follows: Oil revenue – 52.9 percent, CIT – 11.5percent, VAT – 3.3 percent, Customs – 4.3 percent, Independent Revenue – 9.0 percent, Signature Bonus 1.2 percent, JV Equity Restructuring 10.2 percent, Grants & Donor Funding 3.0 percent, Domestic Recoveries & Fines 2.9 percent and Others -1.7 percent.

According to him, “We have again, reflected projected proceeds from oil assets ownership restructuring as revenues for transparency and monitoring. Expected funds have been earmarked to fund critical capital projects as this was not achieved in 2018.”

Udoma further stressed that the 2019 Budget of Continuity is intended to further reposition the economy on the path of higher, inclusive, diversified and sustainable growth, and to continue to lift significant numbers of our citizens out of poverty.

“The Budget also reflects the key execution priorities of the ERGP, namely Restoring Macroeconomic Stability; Agriculture and Food Security; Energy Sufficiency (in Power and Petroleum Products); Transportation Infrastructure; and Industrialization (focusing on SMEs). Government will continue to create the enabling environment for private sector to increase their investment and contribute significantly to job creation and economic growth.

“Already, diversification efforts are yielding positive results with significant growth in the non-oil sector (2.32 percent growth in Q3 2018, up from 2.05 percent in Q2 2018).

Nigeria faces significant challenges with respect to revenue generation and this is being tackled vigorously. Key reforms will be implemented with increased vigour to improve revenue collection and expenditure management. Our aim is to take all measure necessary to ensure that we grow rapidly while maintaining fiscal sustainability” he noted.


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