After decade of revenue mishits, Nigeria faces record budget deficit in 2020
When the curtains fall on 2020, Nigeria’s federal government is likely to have missed its annual revenue target for a record 10th straight year while the budget deficit could hit the highest level since at least 2011.
Using latest data on the 2020 budget implementation which showed Nigeria missed its revenue target by nearly half in the first six months of 2020 but still went on to achieve 80 percent of its spending plan, economists are forecasting that the country could be left with a deficit of N6 trillion by the end of this year.
If the deficit does end up at N6 trillion, it would be equivalent to the entire 2016 budget and marks an increase of 43.9 percent compared to 2019’s actual budget deficit of N4.17 trillion.
It’s the economy that pays the ultimate price for lower-thanplanned government revenues as it means reduced public spending on badly-needed infrastructure.
Although the pandemic has
dealt a blow on government revenues this year, the trend of underperforming revenues and higher-thanexpected budget deficits has been a recurring theme for Nigeria. To bridge the deficits, government borrowing has more than tripled in five years but the economy, which has contracted in per capita terms since 2015, has not felt a significant impact.
That’s because muchneeded spending on infrastructure has taken a backseat for the less flexible government obligations from payment of worker salaries to debt servicing.
For instance, the federal government spent 88 percent of its total expenditure on recurrent items, with capital expenditure significantly underperforming despite setting out to spend 30 percent of its budget on capital projects.
Items such as debt service costs continue to overperform with half-year debt servicing costs rising to N1.57trn, despite a projection of N1.47trn.
“The 2020 revenue performance continues to underwhelm and there is no way that meaningful growth or quality public spending can subsist on these numbers,” said Oluseun Onigbinde, founder of Budgit, a nongovernmental organisation based in Lagos.
“Nigeria needs to hack its revenue challenges and there is evidence in the Strategic Revenue Growth Initiative (SRGI) of the federal government that it might raise its Value Added Tax to 10 percent, which would only be a boon for state governments,” Onigbinde said.
The inability of the federal government to dedicate new debt for capital projects is also alarming.
While FG borrowed N1.42trn as domestic debt as of June 2020, it only spent N446bn for capital items, which means it continues to borrow to maintain recurrent positions.
According to data provided by the budget office, the federal government’s actual revenues came to N1.65 trillion in the first six months of 2020 which is only slightly above half of projected revenues of N2.92 trillion for the period.
The low revenue outturn did not have a commensurate impact on spending as the federal government achieved 82 percent of its spending plan within that period, after spending N4.46 trillion as against a pro-rated budget of N5.41 trillion.
That means the government spent 2.7 times its earnings in the period and leaves a budget deficit of N2.95 trillion in the first half of the year.
According to the Budget Office, the federal government’s actual deficits in the last five years have stood at N1.52trn for 2015, N2.19trn ( 2016), N3.80trn ( 2017), N3.64trn (2018) and N4.17trn (2019), as revenue projections fell short each year.
The government’s low revenue performance means it doesn’t have the resources to boost economic growth, according to Andrew Nevin, partner and chief economist at PWC.
“The country would keep having fiscal struggles until the economy grows inclusively and sustainably at a faster rate of 6-8 percent,” Nevin said.
To achieve this kind of growth, he said the government requires more investment in the economy, but it does not have the resources to finance this investment.