N2.2trn on debt service, fresh N1.6trn loan, rising oil dependence — 7 troubling facts about 2018 budget
After six months in the 2018 fiscal year, President Muhammadu Buhari finally signed the 2018 budget of consolidation into law, thanks to a seven-month delay by the national assembly.
TheCable reviewed the key content of the signed budget and presents seven troubling facts about the budget:
N2.2 TRILLION ON DEBT SERVICING
A budget of N9.12 trillion seems like a lot of money in Nigeria’s budgetary history. A second look however shows that N24 from N100 from that budget goes into debt servicing — N2.2 trillion of the N9.12 trillion goes straight into debt service.
In clearer terms, the amount to be spent on debt is almost double the government’s statutory non-oil revenue — VAT, CIT, customs, and federation account levies — which stands at N1.249 trillion.
Debt servicing from national budget has grown from N943 billion in 2015 t0 N2.2 trillion in 2018.
N1.6 TRILLION FRESH BORROWING
On Thursday, the Debt Management Office (DMO) announced that Nigeria’s debt profile had risen to N22.7 trillion, adding N1.02 trillion in the first three months of 2018 alone.
The 2018 budget however has bigger potentials in raising that number to over N3 trillion by the end of its implementation period — if similar figures come from the second quarter of the year.
According to the budget breakdown seen by TheCable, the federal government will borrow fresh N1.6 trillion to meet the budget deficit for 2018.
With N1.02 trillion from first quarter, N1.02 trillion from second quarter (similar assumption), and N1.6 trillion from 2018 budget, Nigeria will be looking at over N3.6 trillion in fresh debts by the end of 2018 fiscal year.
33 PERCENT OF THE BUDGET TO BE FUNDED BY OIL
In 2016, with President Muhammadu Buhari’s first budget, which was tagged the budget of change, the government said it was moving away from oil dependence.
The government expected only N820 billion of the budget to be funded oil, focusing more on non-oil revenues (N1.45 trillion) and independent revenues (N1.51 trillion).
By 2018, Nigeria had recorded some increase in oil prices, and returned to business as usual; about a third of the budget is to be funded by oil.
From N820 billion in 2016 to N2.12 trillion in 2017 and now N2.988 trillion in 2018, it is clear that Nigeria is resuming its dependence on oil.
Budget dependence on oil has moved from 13.5 percent in 2016 to 29 percent in 2017 and 33 percent in 2018.
N520 BILLION JUMP IN NON-DEBT RECURRENT EXPENDITURE
The budgeting goal is to stem recurrent expenditure, while increasing capital expenditure — but for 2018, the reverse is the case.
While it must be acknowledge that there has been some recruitment in the Nigerian Police Force, the Department of State Services (DSS) and some other federal agencies, a N520 billion increase in recurrent expenditure is still too high.
Nigeria’s recurrent expenditure has from N2.59 trillion in the 2015 (under Goodluck Jonathan administration) to N2.35 trillion in 2016 (President Buhari’s budget of change), N2.99 trillion in 2017 and now N3.51 trillion in 2018.
‘A FALL IN CAPITAL EXPENDITURE’
There has been an increase in the amount of money to be spent on capital expenditure, from N2.36 trillion to N2.87 trillion.
This is some bitter-sweet news. Though the raw cash seem to have increased, the percentage of the capex in the budget has reduced, relative to 2017.
In 2017, capex was 31.73 percent but that has declined to 31.50 in 2018 — a time when recurrent expenditure increased from 68.27 percent to 68.50 percent.
OIL OUTPUT BENCHMARK
In 2017, Nigeria set its oil output benchmark at 2.2 million barrels per day, but the actual budget performance shows only 1.86 million barrels was pumped per day.
With a likely OPEC cut expected for Nigeria in 2018, after 2016/2017 exemptions due to recession, it is expected that Nigeria’s oil output may drop further from 1.86mbpd in 2018.
However, the government has raised expected production to 2.3 million barrels per day — over 400,000 barrels short of the actual production levels.
This means the disparity from actual oil income, and the expected income will run over N500 billion and consequently hurt the implementation of 2018 budget.
DROP IN NON-OIL REVENUE
One of the major selling points of the Muhammadu Buhari government has been the diversification narrative — increase in taxes, increase in mining revenue, and a surge in non-oil revenues.
The 2017 budget however shows that the government expects a drop in non-oil revenue; VAT, CIT, customs, and federation account levies.
According to the budget expectations, non-oil revenues drop by N124 billion from N1.37 trillion in 2017 to N1.25 trillion in 2018.