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Thursday, March 23, 2023

Buhari’s 2021 Expansionary Budget Goals Fall Short on Devaluation, Execution

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Nigerian President Muhammadu Buhari signed a N13.6 trillion 2021 budget into law while touting its expansionary nature in a bid to revive growth in Africa’s largest economy.

“In designing the 2021 Budget, we deliberately chose to pursue an expansionary fiscal policy. As you are all aware, our economy recently lapsed into its second recession in four years. I mentioned during the presentation of the 2021 appropriation Bill that we intend to use the Budget to accelerate our economic recovery process, promote social inclusion and strengthen the resilience of the economy,” Buhari said in his budget speech.

The signing which was done at the Presidential Villa in Abuja on Thursday and was confirmed on the official Twitter handle of the presidency.

While the budget is about 20 percent higher in nominal terms compared to the 2020 budget, in real terms it is not much higher and actually about the same in dollar terms due to the devaluation of the Naira in the latter part of 2020 as well as the surging inflation.

The N10.8 trillion 2020 budget was predicated on a naira exchange rate of N305=$1, meaning it came in at about $35.4 billion in dollar terms.

The Central Bank of Nigeria (CBN) however devalued the official Naira peg at least twice last year to about N380/$1.

Using that exchange rate (N380/$) to calculate the 2021 budget in dollars is equivalent to $35.7billion, meaning there was little expansion in real terms of the budget.

Nigerian inflation which also quickened to an almost three-year high in November as dollar shortages, insecurity in farming areas and supply bottlenecks stoked food prices also means the budget is lower when adjusted for inflation.

Consumer prices rose 14.9 percent from a year earlier, compared with 14.2 percent in October, the Abuja-based National Bureau of Statistics said last month.

Finally, Nigeria’s poor record of budget execution means that the N13.6 trillion record budget while solid on paper, will likely fall short of its revenue targets if history is a guide.

The most recent 2020 budget implementation report shows a 100 percent shortfall in the Half Year actual revenues compared to budgeted revenues from a wide range of sources including FGN share of NLNG Dividends, Revenue from Government owned Enterprises (GOEs), Top 10 GOEs operating surplus, Domestic recoveries Assets and Fines, stamp duty and grants and donor funding among others.

As a result of the zero inflows a shortfall of N1.267 trillion was recorded as at June 2020, compared to the N2.9 trillion in budgeted revenues expected to fund the budget.

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