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COVID-19: FG rescues 2020 budget with external borrowings

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COVID-19: FG rescues 2020 budget with external borrowings …Submits N5.509 trillion revised 2020 budget bill to NASS

…Revised earlier one from N10.594 trillion to N10.509trillion

…Increases Debt servicing from N2.4trillion to N3trillion

…Senate to accelerated approval next week Tuesday

By Henry Umoru

THE Federal government has made a change from its earlier move to  drastically slash the earlier passed N10.594trillion 2020 budget to N9trillion by reducing it with just about N85billion through a new proposal of N10.509, 654, 033, 054 trillion.

The Federal has now jerked the earlier approved  N2.4trillion for debts servicing  in the 2020 fiscal year  to about N3trillion,  specifically N2.951.710trillion

Consequently, President Muhammadu Buhari yesterday sent a revised 2020 Appropriation  Bill to the Senate where it has voted the sum of N2.951 trillion for debt servicing in the N5.509 trillion.

The revised budget bill which scaled  Second Reading showed  that debt servicing was raised from N2.4 trillion as approved in the main budget in December 2019, to the new figure of N2. 9 trillion.

The revised budget bill showed that following the revision of key macroeconomic parameter, projected oil revenues for 2020 have been significantly reduced.

As highlighted by President Muhamnadu Buhari to both Chambers of the National Assembly in separate letters to that effect , the newly proposed N10 .509trillion is predicated on oil price benchmark of $25 dollar per barrel as against $57per barrel fixed for the earlier one.

Other  assumptions of the revised N10 509trillion budget are 1.98million barrels  oil production per day as against 2.3million barrel oil production per day earlier  appproved., exchange rate of N360 to a US dollar as against N305 to a US dollar earlier passed and approved.

Other critical components of the newly proposed N10.509trillion budget are N398.505 billion as statutory transfers , N4.928.525trillion as recurrent expenditure and N2.230.912trillion as capital expenditure.

Buhari in the letter explained further that aggregate revenue for funding the now revised 2020 budget is N5.09trillion which is 35% or N2.78trillion less than the one passed by the National Assembly and signed into law by him in December 2019.

Part of the N85billion reduced from the earlier approved 2020 budget is N11billion deducted from the N110billion  capital votes allocated to the Judiciary in the previous budget.

The Bill was referred by the President of the Senate, Senator Ahmad Lawan to the Senator Olamilekan Adeola, All Progressives Congress, APC, Lagos West Led Senate Committee on Finance to report back at Plenary next week Tuesday, an indication that the Bill will be read the third time and passed.

In lead debate on the general principles of the Bill, Senate Majority Leader, Senator Yahaya Abdullahi, APC, Kebbi North said that  2020 Appropriation Act (Amendment) Bill is now predicated on Oil production of 1.93 million barrels per day and a benchmark oil price of $25 dollar per barrel.

According to him, the official exchange rate has also been adjusted upwards to N360/ US$1 by the Central Bank of Nigeria (CBN). At the Importers and Exporters Foreign Exchange (IEFX) window, where the bulk of foreign exchange transactions are consummated, the exchange rate recently depreciated from about N360/ US$1 in January, 2020 to over N385/US$1.

The budget bill has also adjusted downwards non-oil revenue projections, including various tax and customs receipts. Additionally, the First-Line deductions by NNPC for Federally Funded Upstream Projects/Expenditures have been significantly reduced by 65% from N1.223 trillion to N424.23 billion.

According  to him, they include the removal of N457.50 billion provision for premium motor spirit (PMS) under-recovery, With the re-introduction of a Price Modulation Mechanism (tied to international price movement) as the basis for pricing PMS going forward.

He said that, “The aggregate revenue available to fund the 2020 budget is now projected at N5.09 trillion (35% or N2.78 trillion less than 2020 Budget passed by National Assembly)”

The Senate leader who noted that “26% of this is projected to come from oil related sources while the balance is to be earned from non-oil sources, said that provision of Stamp Duty was reduced to N200 billion from N463.95 billion, while Signature Bonus is down to N350.52 billion from N939.30 billion.

According to the  revised budget bill, “some non essential and deferrable expenditure (especially those classified as Administrative Capital Expenditure) were reduced in favour of growth enhancing, pro-poor funding expenditures and social sector investments in order to combat the current Pandemic as well as its negative impacts on the economy”

He further explained that  provisions for sinking fund to retire maturity bonds to Local Contractors/ Creditors is N272.9 billion, just as he said  that the provisions for Personnel and Pension cost was retained at N2.83 trillion and N536.72 billion respectively.

He said, “The sum of N25.56 billion (representing 1% of the Consolidated Revenue Fund) has been provided for the Basic Health Care provision Fund. Other critical provisions such as N22.73 billion for routine immunization in the Service Wide Votes and N81.14 billion for the Power Sector Reform Programme has been retained.”

According to him, “The aggregate amount available for the Capital Expenditures (exclusive of Capital in Statutory Transfers) in this reverse 2020 budget is N2.23 trillion, consisting of N1.264 trillion for MDAs, N100.3 billion for Covid-19 Expenditures, N20 billion for Capital Component for the Special Intervention Programme, N274.85 billion for other Capital supplementation, N141.17 billion Capital Budget for Ten GOES, N42.96 for Donor Grant Funded Expenditures and N387.30 billion funded by Project-Tied Loans.

The Senate leader lead debate read, “you will recall that the President C-in-C through a communication to the President of the Senate forwarded the 2020 Appropriation Act (Amendment) Bill, 2020 to the Senate which was read at the floor of the Senate today Thursday, 28th May, 2020 by the President of the Senate. The Bill was read for the first time in this Chamber by virtue of Mr. President’s communication.

“You  will recall that 2020 Budget was predicated on Oil production of 2.18 million barrels per day and a benchmark oil price of $57 dollar per barrel and an exchange rate of N305 to a dollar.

“Following the outbreak of the Coronavirus Disease (Covid-19), and its rapid spin into a global Pandemic in Q1 2020, there has been corresponding economic consequences. There has been a slow-down of global economic activities as most countries are on lockdown with movement only limited to essential goods or persons performing essential services. Correspondingly, international oil prices have plunged triggered by the Saudi-Russia Oil War and weakening global demand.

“Further to the above, most of the assumptions underpinning the 2020 FGN Budget have had to be revised in the face of current realities, as Nigeria is vulnerable to the current global economic disruption caused by the Covid-19 crisis which has led to decline in Crude-oil prices and spikes in risk aversion in the global capital markets.

“Prior to the outbreak of Covid-19 Pandemic, the Nigerian economy had been characterized by wavering external sector and improving internal economic indicators. Over-dependence on oil revenue, constrained fiscal space, low foreign and domestic investments and declining foreign reserves made the economy disproportionately vulnerable to the twin shocks of crude oil price/production collapse and a health crisis affecting negatively the informal sector which accounts for over half of the Nigeria’s GDP.

“Currently Nigeria’s foreign reserves have declined to USD 35.9 billion in March, 2020 from USD 44.7 billion in April, 2020. The decrease is largely attributable to the impact of the decline in crude oil receipts.

READ ALSO: COVID -19: Anambra reduces 2020 budget size by N24.3b

“The uncertainty and general decline in global economic activities caused by the Covid-19 Pandemic have further dimmed the prospect of reversing the downward trend in foreign portfolio investments (FPIs) in the Nigerian Treasury Bills (NTBs), also adversely impacted by the Covid-19 inspired flight to safety, represent the second biggest source of dollar inflow into the country after crude oil.

“Following the revision of key macroeconomic parameter, projected oil revenues for 2020 have been significantly reduced. Adjusted downwards also are non-oil revenue projections, including various tax and customs receipts. Additionally, the First-Line deductions by NNPC for Federally Funded Upstream Projects/Expenditures have been significantly reduced by 65% from N1.223 trillion to N424.23 billion.

These cuts include the removal of N457.50 billion provision for premium motor spirit (PMS) under-recovery, with the re-introduction of a Price Modulation Mechanism (tied to international price movement) as the basis for pricing PMS going forward.

“The aggregate revenue available to fund the 2020 budget is now projected at N5.09 trillion (35% or N2.78 trillion less than 2020 Budget passed by National Assembly). 26% of this projected to come from oil related sources while the balance is to be earned from non-oil sources. The provision of Stamp Duty was reduced to N200 billion from N463.95 billion, while Signature Bonus is down to N350.52 billion from N939.30 billion. With the retained revenues of the ten major Government-Owned Enterprises (GOEs), the aggregate FGN revenue is projected at N5.56 trillion.

“In order to forestall, or at least slow down, a decline into another recession, the Federal Government did not set out to implement an austerity-style cuts in expenditure. However, in a bid to reprioritize government spending, some non-essential and deferrable expenditure (especially those classified as Administrative Capital Expenditure) were reduced in favour of growth-enhancing, pro-poor funding expenditures and social sector investments in order to combat the current Pandemic as well as its negative impacts on the economy.

“The FGNs expenditure budget (including grants and donor funding) is estimated at N10.51 trillion (inclusive of project-tied loan financed projects and expenditures of ten GOEs), down from N10.59 trillion in the 2020 Appropriation Act. Debt services is estimated at N2.68 trillion while provisions for sinking fund to retire maturity bonds to Local Contractors/ Creditors is N272. 9 billion. The provisions for Personnel and Pension cost was retained at N2.83 trillion and N536.72 billion respectively. The sum of N25. 56 billion (representing 1% of the Consolidated Revenue Fund) has been provided for the Basic Health Care provision Fund. Other critical provisions such as N22.73 billion for routine immunization in the Service Wide Votes and N81.14 billion for the Power Sector Reform Programme has been retained.

“The aggregate amount available for the Capital Expenditures (exclusive of Capital in Statutory Transfers) in this reverse 2020 budget is N2.23 trillion, consisting of N1.264 trillion for MDAs, N100.3 billion for Covid-19 Expenditures, N20 billion for Capital Component for the Special Intervention Programme, N274.85 billion for other Capital supplementation, N141.17 billion Capital Budget for Ten GOEs, N42.96 for Donor Grant Funded Expenditures and N387.30 billion funded by Project-Tied Loans.

“The 2020 Appropriation Act (Amendment) Bill is now predicated on Oil production of 1.93 million barrels per day and a benchmark oil price of $25 dollar per barrel.

“The official exchange rate has also been adjusted upwards to N360/US$1 by the Central Bank of Nigeria (CBN). At the Importers and Exporters Foreign Exchange (IEFX) window, where the bulk of foreign exchange transactions are consummated, the exchange rate recently depreciated from about N360/US$1 in January, 2020 to over N385/US$1. While the CBN continues to make strenuous efforts to stabilize the exchange rate, it is generally expected that the Naira will suffer further devaluation as Nigeria is projected to lose about US$26 billion in oil revenues, its principal source of foreign currency.

“I believe that all the proposals in this Revised 2020 Appropriation Bill, are laudable and imperative to support economic activities and mitigate the diverse effect of the Covid-19 shocks as well as enhance the critical needs of the citizens of this country.”

Vanguard

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