FG commences deduction of N614b budget support facility from states’ allocation this month – Finance Minister
The federal government will start recovering the N614 billion budget support facility from state governments this month.
Minister of Finance Mrs. Zainab Ahmed made this disclosure in Abuja on Tuesday while presenting the draft 2020 to 2022 Medium Term Expenditure Framework and Fiscal strategy Paper.
Ahmed stated that the states will start getting direct debits from their monthly Federation Account Allocation Committee (FAAC) disbursements.
According to her, “the recovery process for us is to deduct from the FAAC allocation to the states and then we remit to the CBN and we are going to start this remittances by the next FAAC” which will hold in two weeks time.
To show how serious the government is about making the deductions, the finance minister revealed that “there will be no requirement for us to consider the FSP implementation. We do that as a matter of wanting the states to stay on the path of fiscal sustainability but it will not be a condition for the deduction. We will deduct direct at source and remit to the CBN.”
“The N614 billion bailout funds to states is not going to form part of the revenue for funding the budget, it was a loan which was advanced by the CBN and the repayment will be made to the CBN.”
Federal Government last month said, a committee has been put in place to facilitate recovery of N614 billion given to 35 states. 35 states benefited from the facility, and each state is expected to pay back the equivalent of N17.5 billion.
On the N650 billion to the states the minister spoke about, it was a conditional budget support provided by the CBN to help states pay salaries gratuities and pensions. CBN provided N650 billion in loans at 9% with a grace period of two years. The Federal Ministry of Finance helped in disbursements with documented approval by the presidency. That was why the finance minister said the money belongs to the CBN and is going to be paid into CBN account.
With regards to the many incentives and waivers given to investors, the finance minister said “we have too many incentives and too many waivers. But our partners in the trade will not necessarily agree with us. We also agree that there has to be a review of the pioneer status certificate issuance process because the waivers and the incentives are really costing us a lot.”
She however cautioned that government will not just withdraw its decision on granting pioneer status accorded to some investors, adding that “when a decision has been made and approvals have been given, and a private business makes an investment decision based on those incentives, you can’t pull it out overnight. So, there has to be a period within which the commitments that have been made are allowed to exit before you impose new conditions.”
She then added that government is “currently reviewing the quantum of waivers. The idea is to see which one we can begin to pull back and throw away from the pool to reduce the cost on government. But to encourage businesses and to make Nigeria competitive, some of them are essential.”
The federal government has also warned Nigerians to brace up as the 2020 to 2022 fiscal years will be challenging.
Mrs. Zainab Ahmed said the 2020 to 2022 fiscal years will be very challenging with respect to revenue generation and rapid growth in personnel costs.
Ahmed attributed the growth in personnel cost to the creation of new ministries and appointment of additional ministers.
She however assured that government is ready to take firm decisions. To contain rising personnel cost, she disclosed that “any government staff not captured in the Integrated Payroll and Personnel Information System (IPPIS) by October 2019 should forget their salaries.”
From 2020, the budgets of all MDAs and Government Owned Enterprises (GOEs) will now be contained and published in the nation’s annual budget.
The 2020 – 2022 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) outlines Federal Government of Nigeria’s fiscal policies/strategies and macroeconomic projections for 2020 – 2022 and provides the broad framework for the annual budget in line with the Fiscal Responsibility Act (FRA), 2007.
In 2020, the federal government plans to cut a whooping N1.16 trillion off capital expenditure from N2.92 trillion in 2019 to N1.76 trillion in the proposed 2020 budget.
This will then see capital expenditure dropping to 21 per cent of total expenditure in 2020 compared to 32 per cent in the 2019 approved budget.
Mrs Zainab Ahmed said Nigeria is planning to trim its budget for 2020 marginally by 0.19 per cent to N8.90 trillion, as against the N9.16 trillion approved by lawmakers for 2019.
The government approved a 34 and 66 per cents capital/ recurrent expenditure fiscal policy in 2018 and 32 and 68 per cents in the approved 2019 budget.
Details of the medium term expenditure framework (MTEF) and fiscal strategy paper (FSP) 2020-2022 showed that capital expenditure will suffer successive cuts for the three-year period to N1.76 trillion, N1.70 trillion and N1.68 respectively for 2020, 2021 and 2022 despite increases in total expenditure at N8.6 trillion, N8.98 trillion and N9.4 trillion during the same period. Recurrent on the other hand, is expected to increase from N3.41 trillion in 2018 to N4.7 trillion in 2019.
Key Assumptions of the 2020 Budget Framework: Oil Production 2.18 mbpd; Oil Price $55/b; Exchange Rate N305/$; Inflation Rate 10.81%; Nominal Consumption N122.75 trn; N142.96 trn Nominal GDP; and GDP Growth Rate of 2.93%.
A lower benchmark oil price of $55/b (against $60/b for 2019) is assumed considering the expected oil glut in 2020, as well as the need to cushion against unexpected price shock.
There are strong indications of an oversupplied market in 2020. All three of the major forecasters – Organization of the Petroleum Exporting Countries (OPEC), International Energy Association (IEA) and the U.S Energy Information Administration (EIA) generally see non-OPEC production growing by around 2mbpd this year, and by even more next year.
Federal government plans to borrow N1.7 trillion in 2020 of this amount, N850 billion will be domestic borrowing while the balance of N850 billion will be from foreign borrowing.
In addition, federal government has projected a total fiscal deficit of N2.154 trillion with additional funding coming from: privatisation proceeds N126,522,715,909; multi-lateral/Bi-lateral project-tied loans N328,128,150,000.
Sale of government property and Non-Oil asset sales are expected to be nil in 2020.
Total budget for 2020 is put at N9,789,243,849,466. For 2021, N10,110,193,322,738 and in 2022, N10,418,391,196,907.
Zainab Ahmed also warned that the “Africa Continental Free Trade Area (AfCTFA) could create a nightmare situation for the country unless the right policies and actions are implemented expeditiously to improve Nigeria’s economic competitiveness.”