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| President Muhammadu Buhari |
The Federal Government plans to devote N2.45trillion (about 24.5 per cent) of its N10.002trillion 2020 budget estimates on debt servicing, according to the Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) submitted to the National Assembly on Wednesday.
In the MTEF/FSP document, the Federal Government has also adjusted the 2020 budget figures from N9.789 trillion to N10.002 trillion. The MTEF and FSP document was accompanied by a letter from President Muhammadu Buhari to the Senate which was read during plenary by President of the Senate Ahmad Lawan.
The Federal Government plans to borrow N1.7 trillion. Of this amount, N850 billion will be domestic borrowing while the balance of N850 billion will be foreign. The Federal Government has projected a total fiscal deficit of N2.154 trillion with additional funding coming from: privatisation proceeds of 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. The total budget for 2020 is put at N10.002,285,764.998. For 2021, N10,198,623,174,614 and in 2022, N10,507,395,157,584.
In a move designed to erase friction between the monetary and fiscal authorities, the government has restricted the Central Bank of Nigeria (CBN) to its core function of monetary policy issues, while the Federal Ministry of Finance would, henceforth, be saddled with fiscal matters. The development is seen as a proactive measure to prevent a clash and bad blood between the fiscal and monetary authorities.
In line with the new order, the Federal Government has outlined priority areas, which the Central Bank of Nigeria (CBN) has to stick to in managing the economy while the Federal Ministry of Finance will concentrate on fiscal matters.
This is a clear departure from the practice over the years, when the CBN had increasingly played both monetary and fiscal roles in response to the exigency of the time designed to close a noticeable gap.
To take back its control of fiscal matters, the Federal Government has outlined what the roles of the CBN will be in the near future. According to MTEF/FSP document, the priority areas, which the CBN must focus on, include:
- Preserving domestic macroeconomic and financial stability
- Fostering the development of a robust payments system infrastructure
- Improving access to mortgage facilities and credit for small holder farmers, MSMEs.
- Supporting the education sector and youth with entrepreneurship skills in the creative industry.
- Boosting external reserves.
- Accelerating economic growth and job creation.
- Supporting economic diversification efforts through intervention programs in the agriculture and manufacturing sectors.
- Promoting price and monetary stability, reducing inflation to single digit, and
- Maintaining exchange rate stability.
The letter reads: โIt is with pleasure that I hereby submit the 2020=2022 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) to the Senate.
โLet me use this medium to express my gratitude for the much improved partnership between the legislative and executive arms of the Federal Government in our goal of making the budget process deliver better outcomes for the Nigerian people.
โIn particular, I note, with appreciation, the commitment and support the Distinguished Senators have continued to demonstrate.
โPursuant to provisions of the Fiscal Responsibility Act, 2007, the preparation towards submissions of the 2020 Budget to the National Assembly is progressing well.
โThe MTEF/FSP was prepared, taking into account key developments in the global and domestic environments.
โWe have endeavoured to ensure that forecast revenues are realistic, but also reasonably challenging in the face of our significantly constrained fiscal space.
โPlanned spending has been set at prudent and sustainable levels, consistent with governmentโs overall developmental objectives as set out in the Economic Recovery and Growth Plan (ERGP).
โGiven our shared objectives to returning the budget to a predictable January- December fiscal year with effect from 2020, I hereby forward the 2020-2022 MTEF/FSP to the Distinguished Senate and trust that it would be expeditiously considered to facilitate the 2020 FGN Budget preparation.โ
The 2020 โ 2022 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) outlines Federal Governmentโs fiscal policies/strategies and macroeconomic projections for 2020 โ 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 N1.877 trillion in the proposed 2020 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, despite increases in total expenditure during the same period.
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; GDP Growth Rate of 2.93% and Debt Service for 2020 N2.45trillion
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. The three major forecasters โ 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.
The Federal Government had last week warned Nigerians to brace up as the 2020 to 2022 fiscal years would be challenging.
According to the MTEF/FSP document, the 2020 to 2022 fiscal years would be very challenging with respect to revenue generation and rapid growth in personnel costs.
It attributed the growth in personnel cost to the creation of new ministries and appointment of additional ministers.
The Federal Government is ready to take firm decisions to contain rising personnel cost, and that โany government staff not captured in the Integrated Payroll and Personnel Information System (IPPIS) by October 2019 should forget their salaries.โ
It further said that from 2020, the budgets of all MDAs and Government Owned Enterprises (GOEs) would be contained and published in the nationโs annual budget.
