Still on the loopholes in the 2020 Appropriation Bill provisional revenue targets, we observe that oil revenue projection was lowered 29.7% to N2.6 trillion as against 2019 figure of N3.7 trillion, reflecting prudent adjustments in the wake of lower oil prices and weak oil production caused by the slow pace of oil and gas reforms.
Specifically, crude oil price budget benchmark and production assumptions were revised downward to US$57 per barrel and 2.18 mbpd as against 2019 figures of US$60 and 2.3mbpd, respectively. We commend the objectivity and the prudence in this downward review.
On the other hand, non-oil revenue projections (Customs & Excise duties, VAT) were increased by 28.6 percent to N1.8 trillion as against 2019 figure of N1.4 trillion. We observe a marked 94.7% surge in independent and other revenues budgeted at N3.7 trillion as against the 2019 figure of N1.9 trillion.
Although the recent trend in core non-oil revenue has been positive, the projected increase is steep and may be difficult to achieve. We also believe the projections for non-core, non-oil revenues such as independent revenue, asset sales, recoveries and fines, which have historically underperformed, are equally over-ambitious.
Looking at 2017, 2018 and the first half of 2019 budget performance, total collection from the non-core, non-oil revenue lines was zero if we exclude independent revenue. We believe these unrealistic assumptions set up the budget for poor implementation. The expected improvement from VAT revenue would be poorer than some analysts initially anticipated, given the much overdue VAT reforms now proposed.
Under the proposed reform the government plans to raise the VAT registration threshold to firms worth N25 million in annual revenue, while the exemption list has been expanded to cover more food items. The Federal Government’s share of the VAT increase is now expected to be below what some analysts initially estimated at average of N81.8 billion.
In addition, although the FG has once again revealed its plans to collect more revenues, this is likely to take time given that growth remains weak.
Overall, we think that the planned spending of the Federal Government at N10.3 trillion for 2020 which represents a 13.2% increase from the previous year’s N9.1trillion, is aggressive when we consider the aforementioned government’s recent revenue woes which we also believe are likely to persist.
But then, in the broader context, the proposed capital expenditure is neither large enough nor supportive of the country’s growth aspirations. Nigeria’s gross expenditure to GDP which has been estimated at 12.2% compares poorly with peer economies such as South Africa (33.6%), Egypt (29.9%), Kenya (25.4%) and Ghana (23.6%).
We can see clearly that the 2020 Budget is a long way behind where we should be on revamping the economy.