Why 2021 Budget May Be Revised

Emerging economic scenarios typified by unsustainable assumptions, growing socio-political uncertainty and other external factors, among others may bring about the revision of the Federal Executive Council (FEC) approved proposed N13. 08trillion budget for the 2021 fiscal year, some analysts say.

Already the fragile economy is currently operating under projections different from what the budget was predicated upon.

Also, given that oil prices are highly volatile, a supplementary budget may be

necessary if the decline in oil prices persists

This is despite the likely sanction by OPEC+ as the country continues to produce above its quota of 1.4mbpd.

For instance, the increased oil output puts Nigereria’s oil production in August increasing by 0.14% to 1.482mbpd from

1.48mbpd in July

However,the organisation is currently committed to rebalancing the

supply-demand dynamics of the oil market. Also, oil demand recovery concerns still persist as infection cases rise in countries such as UK, India, France and the USA. China’s gradual decline of oil imports also worsens the global demand situation. On the supply side, the prospect of increased oil production in Libya remains another major worry.

Specifically, the proposed budget, which is 21.11%

above the 2020 budget (N10.8trn), is predicated on, for instance, oil benchmark of $40 per barrel, but currently hovering between $36.71pb and $37pb; oil production estimate of 1.86 million barrels per day currently 1.4mbpd; exchange rate of N379 to $1,currently at N462/$; GDP growth target of 3% but currently at -6.1%; Inflation rate of 11.95%, currently at 13.71%.

The budget has an estimated

deficit of N4.49trn, about 3.64% of GDP, which will be financed mainly by foreign and domestic borrowings.

But the rising debt profile of the country over N33trillion and increasing propensity to borrow more has become subject of national discourse with some analysts saying this can choke the economy as major chunk of the revenue would be used to finance the deficit.

According to Bismarck Rewane, chief executive of Financial Derivatives Company in the current monthly Economic Bulletin for November 6, 2020, “Based on our monthly price survey, headline inflation is projected to rise to 14.5% in October from 13.71% in September. This means that inflation will be rising for the 14^th consecutive month. It would also be the highest level in 33 months. Food inflation will be the most affected as it is estimated to climb to 17.05%. Other sub-indices are also expected to move in the same direction.“

He further added that “The supply chain challenges (border closure, insecurity and flooding) couple with higher logistics costs, forex rationing impact on food imports and the CBN’s forex rationing stance to

exert inflationary pressures in the near term.“

He further said that the EndSARS protest magnified existing output challenges and supply chain disruptions.

“This coupled with money supply saturation, higher logistics costs, CBN’s forex rationing as well as forex restriction for imported finished goods have heightened inflationary pressures.“ he said

More worrisome is the fact that the Central Bank of Nigeria (CBN) had repeatedly held that inflation rate above 12% is growth retarding.

“ That is why a projection of 14% could be an alarm bell for policy makers,“ he added.

Discussing specifically on the budget, the foremost Economist said,“ All the budget assumptions are above the current status, which means that the budget may likely be revised.“

However, the analysts believe that the recent protests with the attendant denials by some institutions will further heighten insecurity in Nigeria, discourage foreign investments, reduce economic activity, especially in the Lagos metropolis, and thereby lead to a lower economic growth in Q4’2020.

Just as government may revise the budget proposal, the aftermath of the protest may bring about a change in the ownership structure of small businesses who were mostly affected by the looting by hoodlums during the protests.

“According to the Economist Pocket World in Figures 2020, Nigeria has the highest number (39.9%) of owner-managers and nascent entrepreneurs in the world. However, due to the Lekki massacre that led to the looting of several stores in the country, it is a fact that most entrepreneurs are skeptical about having a physical store.

However, even with an online store, access to adequate finance could be a problem especially if one doesn’t have a stellar business plan. Unfortunately, a business plan drawn pre-COVID is not reflective of current realities. So now is the time to pull the bootstraps and re-strategize to navigate these murky times, “ Bismarck said.

Also Zainab Ahmed, minister of Finance, Budget and National Planning, said on Thursday that the resurgence of COVID-19 pandemic in Europe, may affect the 2021 budget estimate.
Ahmed who stated this on Thursday when she appeared before the Senate Committee on Finance to defend her ministry’s budget said her ministry did not anticipate the second phase of the pandemic, which has caused the oil price to decline in the international market, while planning the 2021 budget.
The Finance minister said the Federal Government “took the safer path” to benchmark the crude oil price in the 2021 budget but the second wave of COVID-19 in Europe threatened the estimate.”
While uncertainty surrounds the budget assumptions, its selective implementation or alleged flouting of some of its provisions by government has become a matter of concerns to the analysts.

For instance, according to the Sahara Reporters, an online platform, despite ban on some items, the government Secretly Permitted Four Companies to Import Maize worth 262,000 tons of maize into the country. The government had in July added maize to the list of ‘41 banned items’.

Wacot Limited, Chi Farms Limited, Crown Flour Mills Limited and Premier Feed Mills Limited were given approval to import maize into the country at specific capacities.
Justifying the ban then, CBN had said that the decision was taken as part of its yearly efforts to control import and encourage local production.
“As part of efforts by the Central Bank of Nigeria to increase local production, stimulate a rapid economic recovery, safeguard rural livelihoods and increase jobs, which were lost as a result of the ongoing COVID-19 pandemic, authorised dealers are hereby directed to discontinue the processing of ‘Form M’ for the importation of maize/corn with immediate effect,” O.S Nnaji, CBN’s Director in charge of Trade and Exchange Department, said in a circular seen by SaharaReporters.
“I am directed to refer to the above subject matter. In line with government policy on food security, sufficiency and striking a balance between food security and local production capacity to meet anticipated shortfall, the Central Bank of Nigeria has granted approval to the underlisted companies to import maize in the quantities stated below:“Wacot Limited 30,000 tons, Citi Bank
Wacot Limited 30,000 tons, Chi Farms Limited 60,000 tons, Titan Trust Bank,
Crown Flour Mills Limited 22,000 tons, Coronation Bank,
Premier Feed Mills Limited 120,000 tons, Zenith Bank.“Note: Approval is strictly for the companies listed above and stemmed to the months of August, September and October alone. Given the clarification, all CACs are directed to note the above companies, approved companies, duration and jerque accordingly. Please be guided,” an internal circular signed by one TM Isa on behalf of the controller of Customs read.

Friday Ameh, Lagos based analyst said that double dealing or standard by the government would further erode confidence in the government said to be suffering from all round deficit.