President Muhammadu Buhari has blamed the poor performance of the 2019 budget on the underperformance of oil and non-oil sources and dwindling revenue from the Value Added Tax (VAT).
Buhari, who disclosed this while presenting the 2020 appropriation bill titled: “Budget of sustaining growth and job creation” before a joint session of the National Assembly yesterday, said that the projected revenue fell short of the actual receipts.
He said: “The 2019 ‘Budget of Continuity’ was based on a benchmark oil price of $60 per barrel, oil production of 2.3 mbpd and an exchange rate of N305 to the United States dollar. Based on these parameters, we projected a deficit of N1.918 trillion or 1.37 per cent of Gross Domestic Product.
“As at June 2019, Federal Government’s actual aggregate revenue (excluding government-owned enterprises) was N2.04 trillion. This revenue performance is only 58 per cent of the 2019 budget’s target due to the underperformance of both oil and non-oil revenue sources. Specifically, oil revenues were below target by 49 per cent as at June 2019.
“This reflects the lower-than-projected oil production, deductions for cost under-recovery on supply of premium motor spirit (PMS), as well as higher expenditures on pipeline security/maintenance and frontier exploration.”
Giving further details, the president noted: “Daily oil production averaged 1.86 mbpd as at June 2019, as against the estimated 2.3 mbpd that was assumed. This shortfall was partly offset as the market price of Bonny Light crude oil averaged $67.20 per barrel, which was higher than the benchmark price of $60.
“Additionally, revenue projections from restructuring of joint venture oil and gas assets and enactment of new fiscal terms for production sharing contracts did not materialise, as the enabling legislation for these reforms is yet to be passed into law.”
He also noted that “receipts from Value Added Tax were below expectations due to lower levels of activities in certain economic sectors, in the aftermath of national elections. Corporate taxes were affected by the seasonality of collections, which tend to peak in the second half of the calendar year.
“The performance of non-oil taxes and independent revenues, such as internally generated revenues, were N614.57 billion and N217.84 billion respectively.”
On the expenditure side, he said: “The 2019 budget implementation was also hindered by the combination of delay in its approval and the underperformance of revenue collections. As such, only recurrent expenditure items have been implemented substantially. Of the prorated expenditure of N4.46 trillion budgeted, N3.39 trillion had been spent by June 30, 2019.”
According to him, “as at September 30, 2019, a total of about N294.63 billion had been released for capital projects. I have directed the Ministry of Finance, Budget and National Planning to release an additional N600 billion of the 2019 capital budget by the end of the year.”
He lamented that the global economic environment remains very challenging, adding that the nation’s annual growth increased from 0.82 per cent in 2017 to 1.93 per cent in 2018 and 2.02 per cent in the first half of 2019.
He said the nation “also succeeded in significantly reducing inflation from a peak of 18.72 per cent in January 2017, to 11.02 per cent by August 2019.
“This was achieved through effective fiscal and monetary policy coordination, exchange rate stability and sensible management of our foreign exchange.
“We have sustained accretion to our external reserves, which have risen from $23 billion in October 2016 to about $42.5 billion by August 2019. The increase is largely due to favourable prices of crude oil in the international market, minimal disruption of crude oil production given the stable security situation in the Niger Delta region and our import substitution drive, especially in key commodities.
“The foreign exchange market has also remained stable due to the effective implementation of the central bank’s interventions to restore liquidity, improve access and discourage currency speculation,” he stated.
Meanwhile, the president has said the Federal Government would soon be forwarding to the National Assembly an executive version of the Petroleum Industry Bill (PIB), assuring of his administration’s resolve to completing the reforms to the governance and fiscal aspects of the bill.
He said: “Furthermore, completing the reforms to the governance and fiscal terms of the petroleum industry will provide certainty and attract further investments into the sector. A consequence of this will be increase in jobs and in government’s take.
“I therefore seek your support in passing into law two Petroleum Industry Executive Bills I will be forwarding to you shortly.”
According to the Buhari, “The draft Finance Bill proposes an increase of the VAT rate from five per cent to 7.5 per cent. As such, the 2020 Appropriation Bill is based on this new VAT rate. The additional revenues will be used to fund health, education and infrastructure programmes.
“As the states and local governments are allocated 85 per cent of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well.”
He explained that the VAT Act already exempts pharmaceuticals, educational items and basic commodities.
“Specifically, Section 46 of the Finance Bill, 2019, expands the exempt items to include the following
Brown and white bread; cereals including maize, rice, wheat, millet, barley and sorghum; fish of all kinds; flour and starch meals; fruits, nuts, pulses and vegetables of various kinds; roots such as yam, cocoyam, sweet and Irish potatoes; meat and poultry products including eggs; milk; salt and herbs of various kinds; and natural water and table water.
“Additionally, our proposals also raise the threshold for VAT registration to N25 million in turnover per annum, such that the revenue authorities can focus their compliance efforts on larger businesses thereby bringing relief for our micro, small and medium-sized businesses,” he stated.
On reforms in the public service, the president disclosed that the Federal Government would continue to control personnel cost, warning that any government staff not captured on the Integrated Payroll and Personnel Information System (IPPIS) platform by the end of October 2019 will not receive his salary.
Similarly, the president announced the ban on any authorised recruitment, directing that any MDA that intends to employ must seek approval failure to do so.
“All agencies must obtain the necessary approvals before embarking on any fresh recruitment and any contraventions of these directives shall attract severe sanctions,” Buhari said.
He also warned against indiscriminate opening of liaison offices by MDAs, saying: “respective heads of MDAs must ensure strict adherence to government regulations regarding expenditure control measures.
“The proliferation of zonal, state and liaison offices by federal ministries, departments and agencies (MDAs), with attendant avoidable increase in public expenditure, will no longer be tolerated,” he said.
Speaking further, the president revealed that government would introduce new performance management frameworks to “regulate the cost to revenue ratios for government-owned enterprises, which shall come under significant scrutiny.
“We will reward exceptional revenue and cost management performance, while severe consequences will attend failures to achieve agreed revenue targets,” the president said.