An Analysis of the Approved 2020 Budget and its Impact

By Editor |   19 December 2019   |   9:52 am  

Awaiting President Buhari’s assent, the 2020 budget of N10.59 trillion was approved by the 9th National Assembly on December 5th, 2019. The approved budget is N264 billion (2.52%) higher than the proposed budget of N10.33 trillion presented to the National Assembly by the president two months ago. When compared to 2019, which was circa N8.916 trillion, the 2020 budget increased by 15.84%.

Titled ‘Budget of Sustaining Growth and Job Creation’, the 2020 budget was described by the president as a budget of:
Fiscal consolidation – to strengthen Nigeria’s macroeconomic environment
Investing in critical infrastructure, human capital development and enabling institutions, especially in key job-creating sectors
Incentivizing private sector investment essential to complement the government’s development plans, policies and programs
Enhancing our social investment programs to further deepen their impact on the marginalized and most vulnerable Nigerians
Based on the president’s description, an analysis of the budgetary allocations to key sectors which spur economic growth – health, education, power, works & housing, labour & employment, transportation, industry, trade & investment and agriculture & rural development – has been conducted.

The 2020 allocation for the healthcare sector is N440.73 billion, approximately 4.16% of the total budget, compared to the approved 2019 budget, it increased by 3.94% from N424.03 billion. Capital expenditure increased by 4.95% from N57.085 billion in 2019 to N59.909 billion in 2020. Nigeria in the last 10 years has been unable to meet the April 2001 African Union declaration which states that 15% of a country’s budget should be allocated to the healthcare sector.

Health is one of the major factors that contributes to economic development. There is a direct correlation between health expenditure and economic growth. A unit change in health expenditure has the potential to increase GDP per capita by 0.38%. Also, a healthy population translates to increased productivity and income per capita.

The 2020 allocation for education is N575.031 billion with capital expenditure at N84.728 billion of the said figure. Compared with 2019 there is a 44.37% increase in capital expenditure.
UNESCO’s benchmark for education is 26% of the annual national budget and Nigeria has consistently fallen short of this requirement as it allocated 10.7% in 2016, 6% in 2017, 7.1% in 2018 and 5.9% in 2019. 5.2% of the 2020 budget has been allocated to education, of which approximately 85.2% of the total allocation accounts for recurrent expenditure.

Quality of knowledge and skillsets of the labour force are key determinants for both business and economic growth. An economy’s productivity rises as the number of educated workers increase as skilled workers perform tasks more efficiently. Industries with higher education and training requirements tend to pay workers higher wages, which converts to increased consumer spending, increased revenue for businesses that depend on consumer sales, and ultimately leads to a more buoyant economy.

The Federal Ministry of Power, Works and Housing has the highest capital expenditure allocation of N444.646 billion higher than the N386.87 billion proposed by the president in October. A study conducted by McKinsey on Nigeria’s infrastructure requirement has revealed that for the country to bridge the wide infrastructure gap, approximately N11.25 trillion ($31 billion) has to be invested annually over a period of 10 years.

Infrastructure is critical for the health and wealth of a country, enabling private businesses and individuals to produce goods and services more efficiently. Increased infrastructure spending by the government results in higher economic output by stimulating demand in the short term and by increasing overall productivity in the long term.
While presenting the proposed budget to the National Assembly, the President noted that the budgetary allocation for the National Human Rights Commission increased by 67%, from N1.5 to N2.5 billion. This increase was to ensure that the commission carried out its functions more effectively.
The allocation for debt servicing at N2.72 trillion is N260 billion higher than the allocation for all capital expenditure in the budget, which is N2.46 trillion. Revenue was valued at N8.15 trillion, with oil revenue accounting for N2.64 trillion and non-oil N5.51 trillion. The Federal Government’s projected revenue does not cover expenditure, as the budget has a fiscal deficit of N2.28 trillion.

Key Assumptions in The Budget
These include a proposed benchmark price of $55 per barrel, which was increased by the National Assembly to $57; daily oil production capacity of 2.18 million barrels; inflation rate of 10.81%; exchange rate of N305 to $1, and a projected GDP growth rate of 2.93%.
Budgetary allocations to other key ministries include Federal Ministry of Agriculture and Rural Development- N124 billion; Federal Ministry of Industry, Trade, and Investment- N38.5 billion; Federal Ministry of Labour and Employment- N24.4 billion; Federal Ministry of Transport- N121.3 billion.
The 2020 allowances for the members of the National Assembly at N128 billion, is higher than the capital expenditure for ministries which are key drivers of the Nigerian economy.

Source: Budget Office of the Federation
Key sectors such as industry, trade and investment, education, healthcare, labour and employment, power, works and housing, and transportation are catalysts for growth.
With the budgetary allocation of political officials and some low impact sectors almost four times that of key sectors, is Nigeria growth inclined? Are the budgetary allocations reflective of the description of the 2020 budget by the President? Time will tell.

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