How efficient public finance will address post-Covid-19 challenges
Disturbed by the many challenges posed by the COVID-19 pandemic, particularly its implications for Nigeria’s economy, stakeholders, Tuesday highlighted priority areas where government’s spending should focus majorly on.
They noted that there was an urgent need to demand prudence for government, especially with the crash in oil prices affecting the 2020 appropriation act and stimulating borrowing and loans from external and internal sources.
The experts spoke at the media launch of a Public Finance Management Roadmap report produced by the Civil Society Legislative Advocacy Centre (CISLAC), and Oxfam, demanding the allocation of least 20 per cent of the current budget to improve access to quality education, the stakeholders said there was a need for an increase in Public Health spending, as well as in resource allocation to about 15 per cent of the annual budget.
The report comes on the backdrop of Nigeria’s external debt, which is already standing at $1.5 trillion, while domestic debt has hit N6.5trillion, while the gross domestic product (GDP) may contract by 3.5 per cent year-on-year to 2020, and projected decline by 90.0 per cent in oil revenue.
Similarly, estimated net oil and gas revenue available for Federation Account Allocation Committee (FAAC) distribution is now forecast at 80 per cent lower at N1.1trillion against N5.5trillion previously, despite an N649billion reduction in allowable fiscal deductions by NNPC for federally-funded projects/expenditures.
Additionally, the average production cost of Nigerian crude has been revised downward to $28 per barrel from $33 with implications for Petroleum Profit Tax, while anticipating a flattened curve that could magnify the impact of low oil price and weaker domestic crude production if the cases of COVID-19 in Nigeria continue to rise.
Recall that Customs revenue is now projected at N1.2trillion in 2020 against N1.5trillion earlier, with CISLAC noting that same impact applies to the amount accruable to VAT pool account now forecast at N2trillion against N2.1trillion previously. Also, the amount accruable to the Federation Account is now projected at N3.9trillion against N8.6trillion formerly.
Conducting further analysis of the 2018 and 2019 budget performance, the report noted the usual trend of higher recurrent spending, and lower capital expenditure. It added that in 2018, the federal government proposed a total budget of N9.1trillion, but appropriate just 31.5 per cent of the capital expenditure with recurrent taking the remaining 68.5 per cent.
“However, only N3.96trillion was generated at the end of the year, and N3.1trillion, representing 78 percent of this sum was spent on non-debt recurrent expenditure. Similarly, the 2019 federal budget was N8.8trillion with recurrent taking the lion share at N4.04trillion representing 46 percent while capital allocation got N2.031trillion representing 23 percent.
“Recently too, as a result of fiscal mismanagement, government expenditure on debt servicing has assumed a dangerous pattern in the past few years, gulping more than yearly capital expenditure. This trend is not limited to the federal budget alone; many states have consistently maintained a similar trend or pattern of expenditure. This is a fundamental setback to any prospect of development financing as the bulk of government resources goes into recurrent and debt financing at the expense of capital financing,” the report stated.
To achieve serious development, the group insisted that there was a need for governments both at national and sub-national to allocate more resources to capital expenditure considering the important role it plays in engendering socio-economic development in the country.
It also stressed the need for increased investment in universal social protection programmes that benefit the poor as well as the implementation of universal tax-base public service and social intervention programmes.
“The government needs to ensure the transparency of the public procurement system by providing a timely and adequate degree of transparency in each phase of the public procurement circle. Ensure transparency of the flow of public funds, from the beginning of the budgeting process throughout the public procurement cycle to allow stakeholders and the citizens to understand government spending priority,” it added.
According to the report, governments at all levels should develop an inclusive public finance framework with a clear resource mobilization plan that looks beyond oil revenue.
It added that federal government should ensure the efficient management of the oil sector by ensuring the passage, assent, and functioning of the Petroleum Industry Governance Bill as well as the other components, particularly the Petroleum Industry Fiscal Bill.
The report also stressed the need to adopt participatory budgeting systems that allow for the needs and aspirations of the citizens to be captured in the budgeting process while improving capital spending to drive real economic growth.