Analysts at Afrinvest Ltd have said the federal government’s 2020 budget proposal has completely ignored lessons from the recent dire straits of its budget performance.
The analysts contend that the federal government’s revenue projections underperformed actual collection by 47.8% in 2017 and was little changed at 44.7% in 2018 and 41.6% as at H1:2019.
They said the federal government projects revenues of N8.2tn in 2020, which is 17.1% higher than N7.0tn in 2019 is more than twice the actual collection of N4.0tn in 2018.
They said oil revenue projection was lowered 29.7% to N2.6tn (vs. 2019 N3.7tn), reflecting prudent adjustments in the wake of lower for longer oil prices and weak oil production due to the slow pace of oil and gas reforms.
Specifically, crude oil price and production assumptions were revised downward to US$57.0/bbl. and 2.18mbpd (vs. 2019: US$60.0/bbl. and 2.3mbpd) respectively.
According to the analysts, oil revenue would be higher if the exchange rate assumption of N305.00/US$1.00 is adjusted to the market rate of US$365.00/US$1.00.
On the other hand, non-oil revenue projections (customs and excise duties, VAT and CIT) increased by 28.6% to N1.8tn (vs. 2019 N1.4tn).
They said the projections for non-core, non-oil revenues such as independent revenue, asset sales, recovery and fines, which have historically underperformed, were ambitious.
They also argued that the expected improvement from VAT revenue would be poorer than initially anticipated given the much overdue VAT reforms now proposed.
The federal government is planning to raise the VAT registration threshold to N25.0m in annual revenue while the exemption list has been expanded to cover more food items.
“We reiterate that the removal of petrol subsidies is key to boosting government revenues in the immediate term,” they noted.