The federal government has been advised to implement its revenue drive with caution, so as to limit undue pressure on businesses and consumers.
Analysts at FSDH Merchant Bank Limited gave the advice in a report on the proposed 2020 Appropriation Bill President Muhammadu Buhari submitted to the National Assembly recently. A copy of the report was made available to newsmen yesterday.
The Lagos-based research and investment bank pointed out that given the slow economic recovery with Gross Domestic Product (GDP) growth below two percent, the government should avoid measures that would emasculate businesses.
The firm, however, welcomed the early presentation of the Appropriation Bill.
The 2020 proposed budget presented by the president was ₦10.3 trillion, which was 16 percent higher than the approved 2019 budget of ₦8.9 trillion. This represented the highest ever spending plan of the federal government.
The government’s spending plan of ₦10.3 trillion consists of non-debt recurrent expenditure of 47 percent, debt service of 27 percent, capital expenditure of 21 percent and statutory transfer of five percent.
A breakdown of the proposed revenue totalled ₦8.1 trillion, which consisted of ₦2.64 trillion oil revenue (32%) and non-oil revenue of ₦5.5 trillion (68%).
Non-oil revenue would include income from the proposed VAT increase as well as other non-oil taxes and tariffs.
FSDH added: “Early presentation of the 2020 budget is a welcome development. If the budget is approved before the budget year begins, this could result in improved budget performance, particularly capital budget execution.
“The proposed 2020 budget is largely ambitious both in terms of spending plans and projected revenue.
“One major concern is meeting revenue targets to fund the budget. Oil only accounts for 32 percent of total budgeted revenue in 2020, suggesting that more pressures will be exerted on major non-oil revenue-generating areas.”
Continuing, the firm stated that to meet revenue projections, the federal government would have to implement an increase in the Value Added Tax (VAT) and other forms of taxes, “which could trigger inflation and reduce purchasing power of consumers.”
In addition, it predicted that slow implementation/collection of newly imposed VAT and other taxes was expected to play out in 2020.
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“We note the significant increase in recurrent expenditure from ₦6.8 trillion to ₦8.2 trillion. Personnel costs including overhead and pensions increased to ₦3.6 trillion and accounts for 74% of non-debt recurrent expenditure.
“The new minimum wage was partly responsible for this increase. This is expected to create inflationary pressures in the short-to-medium term from the year 2020.
“The marginal five percent increase in capital expenditure when compared with 2019 approved budget figures is a concern.”
Given the country’s huge infrastructure deficit, the report stressed the need to prioritise capital spending to improve budget performance and ease of doing business in Nigeria.
With the revenue target likely to be unmet as well as the challenges in the procurement system, it predicted that “only about 55 per cent of capital budget will be implemented, that is N1.2 trillion would be injected into the economy for capital projects in 2020.”
Debt servicing as a percentage of budgeted revenue stood at 33 percent in the 2020 proposed budget.
“We share the view of the CBN that the fiscal authorities should build fiscal buffers to avert macroeconomic downturn in the event of a decline in oil prices and/or any other external shock.
“The continued unrealistic revenue targets and increasing dependence on central bank financing of the fiscal deficit is unsustainable.
“Coordinated fiscal and monetary policies are urgently required that focus on fiscal consolidation and tighter monetary policy,” it added.
