Analysis: Highlights from the 2016 Budget Implementation Report
With the cost of debt servicing now hitting a historical high of N1.313tn per annum, Nigeria may be entering into a debt trap as revenue from the oil sector can not service the Nigeria’s debt of N19tn (March 2017).
In July 2017, seven months after the end of the fiscal year in review, the budget implementation report for the fiscal year 2016 was released. Notably, the Federal Government’s actual revenue in the fiscal year 2016 performed significantly lower than expectations. Total revenue amounted to only N1.75tn, 54.66% below the 2016 budget projections of N3.86tn.
Interestingly, receipts from oil, which many believe constitute the bulk of Nigeria’s funding and drive the activities of the government, made up less than 50% of actual revenue at a sum of N697.8bn. With the cost of debt servicing now hitting a historical high of N1.313tn per annum, Nigeria may be entering into a debt trap as revenue from the oil sector can not service the Nigeria’s debt of N19tn (March 2017).
Although personnel cost was down from N1.87tn in 2015 to N1.69tn in 2016, the total recurrent expenditure, however, increased to N3.88tn from N3.83tn; partly as a result of the transfer of 2015 outstanding recurrent expenditure liabilities of N82bn. Federal government’s recurrent expenditure was estimated at N4.12tn for 2016.
In all, a total of N4.39tn was spent in 2016 despite the federal government’s budgeting of N6.06tn for the fiscal year — due to the late passage of the budget. The capital expenditure component of the spending in 2016 was only N173bn of the projected N1.58tn. However, some of the capital expenses were carried into the new fiscal year 2017 in line with the clause attached to the Appropriation act.
With revenue falling behind target and expenditures significantly flat, the deficit for the year stands at N2.19tn which is very close to the N2.2tn projected for the entire fiscal year -meaning deficit numbers may be substantially wider if capital spending of 2017 is considered.
- FGN Actual Oil Revenue is small: The federal government revenue projections for 2016 was N717.55bn. However, we noticed they were only able to collect a total of N697.8bn which is 2.5% lower than the budget projected amount. This has been linked to oil production shortfalls due to the escalation of pipeline destruction, vandalism.
2. FGN Non-Oil Revenue also suffered a decrease: Federal government actual collection of non-oil revenue for 2016 was N818.51bn. We observed actual collections was 47.87% below the budget projection of N1.57tn. Here, it is also evident that the decline in earnings from the non-oil products is a reflection of the significant drop in economic activities as a result of the recession
3. A slight increase in Federal Government VAT: A close look at the non-oil revenue components, however, shows some positives. Although receipt classified as Value Added Tax (VAT) for 2016 at N109bn was N89.24bn below revenue projections, there is a slight increase in actual collections for 2016 when compared to 2015 collections of N104.66bn despite the economic recession and depressed consumer spending.
4. Federal Government Revenue from Customs suffered a loss: We notice a slight difference between Federal government’s actual collections for 2015 and 2016. While actual receipt in 2015 was N232bn, 2016 collection was N228.61bn. Interestingly, revenue collected fell short of budget estimates of N326.44bn for 2016 by N97.83bn.
5. Federal Government Company Income Tax is dropping: There is a slight decrease in revenue receipt for Company Income Tax (CIT) in 2016. In 2015, N473.32bn was realised while only N457.91 was recorded in 2016 despite a budget projection of N867.5bn. The N15.41bn fall in revenue in 2016 can be linked to the slowdown in economic activities in Nigeria.
6. FGN Independent Revenue did not hit the budget target: A total of N237.75bn was realised from independent revenue in 2016. The projection of income was hinged on the administrative and operational advantage that the Treasury Single Account will bring regarding the revenue administration. Sadly, actual revenue collected was 84.21% below the projected N1.5tn for 2016.
7. Fall in FGN Personnel cost: The cost of servicing federal government workers decrease slightly in 2016. Actual expenditure numbers show that the federal government spent approximately N1.69tn on the emoluments, allowance, and salaries of its workforce. In 2015, a total of N1.87tn was spent on the same item- reflecting the gains associated with the adoption of the Integrated Payroll and Personnel Information(IPPIS).
8. Federal Government’s Overhead cost is reducing: Overhead cost projection for 2016 was N163.4bn. However, actual spending on the cost of running the government was N149.28bn in the fiscal year under review. The reduction may be reflective of government’s decision to set up the efficiency unit, but more work is needed.
9. Revenue from the oil sector not enough to service Nigeria’s debt: We notice a continuous increase in the cost of servicing debt for 2016. A total of N1.31tn was spent in 2016 against the N1.06tn in 2015. Given that oil revenue for 2016 was only N697.8bn which could only cover a portion- 53.26% of the overall cost of debts, severe moderation in debt accumulation is required if Nigeria is to avoid a debt trap.
10. FGN Recurrent cost is flattening out: We realised that total recurrent expenditure which includes personnel cost, pensions, overhead cost, domestic and foreign debt servicing is decreasing in real terms. In 2015, a total of N3.83tn was spent on recurrent items while 2016 spending sums up to N3.88tn. However, the 2016 increase is due to the N82.61bn spending which is directly connected to the 2015 recurrent expenditure obligations carry over into the 2016 fiscal year.
11. Federal Government’s Capital Expenditure: Total capital expenditure was significantly low in 2016. A total sum of N601bn was spent on administrative and development project in 2015. Only N173.01bn was released out a budget of N1.59tn in 2016 in the seven months of 2016 when budget under review was sufficient. Since the 2016 budget was also implemented in the 2017 calendar year, we are yet to know how much is total amount spent on capital expenditure.
12. FGN Statutory Transfers close to budget projections: We found out that there is a 1.61% increase in statutory transfers spending in 2016 when compared with 2015 figures. Agencies such as the Niger Delta Development Commission (NDDC), Independent National Electoral Commission (INEC), National Human Right Commission (NHRC) and Public Complaint Commission (PCC), got slightly lower votes. Other statutory agencies including the National Assembly (NASS) and the National Judicial Council (NJC) among others have a 100% budget performance for the fiscal year 2016.
Conclusion
Government revenue projection consistently remains overly optimistic and will need to realign itself with fiscal reality. Policies to drive revenue collection efficiency are necessary while the Federal Government needs to ramp up efforts to rein in on recurrent expenditure.
The cost of servicing debt is also entering unmapped territory as government revenue is barely keeping up. The government needs to moderate debt uptake and focus more on expanding the economic variables to achieve an all-round economic development.
Also, a budget calendar and the budget process need to be structured to avoid the recurring issues associated with the passage of the budget which significantly affects and impact on capital expenditure spendings.
In all, the federal government needs to adhere strictly to the provision of the fiscal responsibility act, particularly as it relates to the deficit to GDP ratio.
