Budget 2021: Brace up for another recession — Buhari

President Muhammadu Buhari said, yesterday, that the country is heading for another recession, the second in four years.

He noted, however, that the Federal Government has put in place plans to ensure rapid recovery in 2021.

The President, who made the remarks while presenting the 2021 budget proposal to the National Assembly, spoke against the backdrop of a significant increase in deficit beyond the provisions of the Fiscal Responsibility Act, following revenue pressures faced by the government.

He said: “The 2021 Budget was prepared amid a challenging global and domestic environment due to the persistent headwinds from the coronavirus pandemic.

“The resulting global economic recession, low oil prices and heightened global economic uncertainty have had important implications for our economy.

“The Nigerian economy is currently facing serious challenges, with the macroeconomic environment being significantly disrupted by the coronavirus pandemic.

“Real Gross Domestic Product, GDP, growth declined by 6.1 per cent in the second quarter of 2020. This ended the three-year trend of positive, but modest, real GDP growth recorded since the second quarter of 2017.

“I am glad to note that, through our collective efforts, our economy performed relatively better than that of many other developed and emerging economies.

‘Second recession in four years’

“GDP growth is projected to be negative in the third quarter of this year. As such, our economy may lapse into the second recession in four years, with significant adverse consequences.

“However, we are working assiduously to ensure a rapid recovery in 2021. We remain committed to implementing programmes to lift 100 million Nigerians out of poverty over the next 10 years.

“As skills’ deficits limit employment opportunities in the formal economy, various skills’ development programmes are being implemented simultaneously to address this problem frontally.

“For instance, the government is implementing the Special Public Works programme to provide employment opportunities to 774,000 youths across the 774 local government areas of Nigeria.

“We have also recently introduced the N75 billion Nigeria Youth Investment Fund, of which N25 billion have been provided in 2021 Budget.

“We thank all Nigerians, for your perseverance and continued support during these difficult times. We remain unwavering in our commitment to actualize our vision of a bright future for everyone.”

Deficit beyond provisions of law

Also, against the backdrop of the revenue pressures faced by the Federal Government, the 2021 Appropriation Bill showed a significant increase in deficit beyond the provisions of the Fiscal Responsibility Act.

The deficit, inclusive of government-owned enterprises and project-tied loans, is projected at N5.2 trillion, which represents 3.64 per cent of estimated Gross Domestic Product, GDP, 0.64 percentage point above the 3.0 per cent threshold set by the Fiscal Responsibility Act, 2007.

Explaining this position, Buhari, however, stated: “We still face the existential challenge of coronavirus pandemic and its aftermath; I believe that this provides a justification to exceed the threshold as provided for by the law.” Giving further details on the deficit, he said:

“The deficit will be financed mainly by new borrowings totalling N4.28 trillion, N205.15 billion from Privatization Proceeds and N709.69 billion in drawdowns on multilateral and bilateral loans secured for specific projects and programmes.”

Commitment to debt obligations

Buhari also indicated that the government was determined to fulfilling the debt servicing obligations against the backdrop of the increasing debt burden and debt servicing-to-revenue ratio.

In this connection, he stated: “We remain committed to meeting our debt service obligations. Hence, we have provisioned N3.12 trillion for this in 2021, representing an increase of N445.57 billion from N2.68 trillion in 2020.

“A total of N2.183 trillion has been set aside to service domestic debts while N940.89 billion has been provided for foreign debt service. N220 billion is provided for transfers to the Sinking Fund to pay off maturing bonds issued to local contractors and creditors.”

Budgeted figures

Meanwhile the 2021 budget details which retained most parameters of the recently revised 2020 budget, show that aggregate revenue of N5.84 trillion was projected to fund N10.81 trillion expenditure.

In a budget of few surprises tagged a “Budget of Economic Recovery and Resilience”, the Ministry of Defence, more than four years in a row has taken the lead with a proposed allocation of N840billion, while Police and Education got N441.39billion and N554.10billion respectively.

The President, in his presentation speech, said the earmark for education ministry, represented a sixty percent increase from the 2020 budget .

Capital expenditure

The budget provided an aggregate sum of N3.85 trillion to be available for capital projects in 2021, including: N1.80 trillion for Ministries, Departments and Agencies (MDAs’) capital expenditure; N745 billion for Capital Supplementation; N355 billion for Grants and Aid-funded projects; N20 billion for the Family Homes Fund; N25 billion for the Nigeria Youth Investment fund; N336 billion for 60 Government Owned Enterprises; N247 billion for capital component of Statutory Transfers; and N710 billion for projects funded by Multi-lateral and Bi-lateral loans.

The 2021 capital budget is N1.15 trillion higher than the 2020 provision of N2.69 trillion. Giving more details into the capital expenditure strategy, Buhari stated: “At 29 percent of aggregate expenditure, the provision moves closer to this Administration’s policy target of 30 percent.

“Capital expenditure in 2021 remains focused on the completion of as many ongoing projects as possible, rather than the commencement of new ones. “We have also made efforts to ensure equity in the distribution of projects and programmes in the proposed budget. “I will be providing the National Assembly a list of some of the most critical projects which we must work collectively to ensure they receive adequate funding. Until projects reach completion, they do not deliver the dividends of democracy that Nigerians rightly deserve.

Hardships citizens face

Buhari spent some time addressing the major concerns of economic hardships most Nigerians are facing as a result of the economic policies of his administration which has recently been worsened by the impact of the COVID-19 pandemic.

He stated: “I fully understand the difficulties many of our people are going through with the implementation of our reform agenda. “However, the measures we are implementing are necessary for sustainable public finance, better allocation of our scarce resources and improved public service delivery.

“As we implement these reforms, social safety nets will be implemented to cushion the effect of the most vulnerable of our citizens as well as business owners. “In furtherance of our inclusiveness agenda, the sum of N420 billion has been provided to sustain the Social Investment Programme.

N20 billion has also been set aside for the Family Homes Fund, our Social Housing Programme. “We have expanded our National Social Register, to include an additional one million Nigerians following the onset of Coronavirus. “We recently introduced the N75 billion Survival Fund Programme to support and protect businesses from potential vulnerabilities.

“Furthermore, the Central Bank of Nigeria is reducing the interest rate on its intervention facilities from 9% to 5% with a 1-year moratorium till 31st March 2021, to provide concessional lending of: N100 billion to households and small businesses; N100 billion to the healthcare and pharmaceutical industry; and N1 trillion to large agricultural and manufacturing businesses.

“We urge Nigerian businesses and individuals to make the most of these concessional credit facilities and other such opportunities.”

Revenue challenges

The President also took time to update the legislators on the revenue challenges of the Federal Government, especially as it relates to the implementation of both the 2020 and 2021 budget. He stated:

“To improve independent revenue performance, I have directed that the cost profiles of Government Owned Enterprises (‘GOEs’) should be scrutinized and limits imposed on their cost-to-revenue ratios.

Supervising ministers have also been directed to ensure closer monitoring of the revenue generating activities and expenditures of the Government Owned Enterprises. “Let me emphasize that revenue generation remains our major challenge.

Nevertheless, government is determined to tackle the persisting problems with domestic resource mobilization, as there is a limit to deficit financing through borrowing. “The time has come for us to maintain a healthy balance between meeting our growing expenditure commitments and our long-term public financial health.