The new era of collaboration between the Presidency and the National Assembly is already yielding results with the possible early consideration and passage of President Muhammadu Buhari’s expenditure plans for 2020. He has presented the government’s N10,330 billion (US$28.51 billion) 2020 Budget to the National Assembly and it is likely to be passed into law much earlier than budgets have been in recent years.
Despite this, however, the 2020 expenditure plan has several of the same shortcomings of previous budgets. There are unrealistic assumptions about the ability of the government to generate the anticipated forecast revenues — particularly given that both oil prices and production are forecasted to be lower than in 2019 — and this will hold back economic growth.
The government will be desperate for cash next year and it is likely to increase domestic borrowing in order to fund its rising obligations. Things are even more complicated because the debt situation is so problematic. A total of N2,450 billion (US$6.76 billion) has been set aside for debt service next year which is almost the same as the N2,460 billion (US$6.78 billion) set aside for capital expenditure. Past trends have shown that it is debt servicing payments are made whilst capital expenditure is deferred.
President Buhari admitted that not a single Naira has been released as capital expenditure this year while Nigeria’s debt service obligations have continued to be met. With a rapidly growing population the country is now basically sacrificing infrastructure development in order to repay its debt but this trend poses a great risk to economic development unless it is reversed. Increased deficit spending will only exacerbate the problem.
In an effort to boost revenues, the government is planning to: increase value added tax from 5.0% to 7.5% of which 85% will go to the state governments; and also amend the Deep Offshore and Inland Basin Production Sharing Contract (Amendment) Bill 2018.
The government — through the office of the Attorney General of the Federation and Minister of Justice, Abubakar Malami — is demanding that the major oil companies pay US$62 billion in back payments on Production Sharing Contracts (PSCs) that were signed in 1993. The government is desperately seeking additional funds and greater foreign investment but the IOCs insist that they do not owe anything.
‘We have opened up a process of engagement between the parties,’ Malami said on 12 October, ‘Whether those discussions will eventually translate to settlement, whether it will translate to opening up of a full-blown negotiation process, is what we wait to see.’ He went on to say that ‘Taking into consideration the government’s need to attract investments, no possibility can be out-ruled, and the possibility of settlement is not out of sight.’