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Nigeria to cut budget by 0.6% – why it matters

Nigeria Budget Cuts


Nigeria to cut budget by 0.6% – why it matters

The Federal Government is set to present a revised 2020 budget expenditure of 10.52 trillion naira ($27 billion), a 0.6% reduction in the national budget from the previously approved budget. The cut is triggered by an expected revenue decline fueled by the downward outlook for crude oil price from the $57 per barrel price benchmark set in the earlier version of the budget.

Why it matters: This budget cut just doesn’t scratch the surface, given the situation where revenue is facing a decline around 56 per cent. This would mean that the government is aiming to pile up more debt. The FG recently obtained a $3.4bn loan from the IMF and is set to receive about $3bn in additional funds from other sources including the AfDB and the World Bank.

  • To fund this massive budget using debts would ensure the country’s precarious debt service-to-revenue ratio hits the roof (96% by IMF projections). This means that for every 100 naira the country earns, it would spend 96 naira servicing debts. It would likely lead to a credit ratings downgrade and make it even more difficult and expensive to borrow.
  • People who have been optimistic of a plan to reduce size of government, would be disappointed. President Buhari in April ordered the Secretary to the Government of the Federation to see to the implementation of the famous civil service reform proposal known as the “Orosanye report” which recommends the rationalization of government agencies and parastatals. This, according to its supporters, would have resulted in the significant reduction of government.
  • However, implementing the Oronsaye report, which may involve job losses, during an economic crisis would have been problematic.
  • Government is showing increased appetite for reforms, including subsidy removal and increasing taxation, based on commitments to the IMF leading up to the loan.
  • Opposition leader, Atiku Abubakar, arguing in favor of steeper cuts particularly expenditure tied to pay and travel for ranking government officials, said: “Any budget slash that is less than 25% will not be in the interest of Nigeria.”
  • State governors seem to be taking a more cautious approach, which is at parallel with the FG’s position. For instance, the Governor of Ekiti state, Kayode Fayemi (who also chairs the Governors Forum) announced a 27% reduction in his state’s budget, with a 50% cut to overheads.

Compare: Saudi Arabia is cutting its budget by almost 30 percent.

Bottomline: From a country that recently announced its intention to support its expenditure with private donations for COVID-19 response, this budget revision is wishful thinking, not a plan.

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