President Muhammadu Buhari signed the 2021 Appropriation Bill (i.e. the Budget) of the Federal Government of Nigeria (FGN) into law today, Thursday, 31 December 2020. The revised budgeted expenditure is ?13.59 trillion, 4% (?505billion) higher than the ?13.08 trillion budgeted expenditure which the President presented to the National Assembly (NASS) in October 2020. The upward revision is based on the additional expenditure (mostly capital in nature) proposed by NASS earlier in December 2020. The revenue component of the proposed budget was not changed by the NASS.

President Buhari also signed the 2020 Finance Act which would be effective from 1 January 2021. The 2020 Finance Act, is expected to reform the ease of doing business, provide legal framework on crisis intervention, enable fiscal relief of the mass transit sector, reform public procurement and state the fiscal responsibility of government.

Please see our initial analysis of the 2021 budget proposal which the President presented to NASS in October 2020 and our highlight of the 2020 Finance Bill.

Key parameters and changes

The Budget shows a projected aggregate expenditure of ?13.59 trillion with expected revenue of ?7.88 trillion resulting in a deficit of ?5.71 trillion for the 2021 fiscal year, which continues the trend of budget deficits. The budget deficit increased by 15%  and will be financed by new foreign and domestic borrowings, proceeds from privatization, public/private partnerships, signature bonuses and drawdowns on loans secured for specific development projects.

The Budget is based on an estimated crude oil production of 1.86 million barrels per day (2020: 1.80 million barrels per day) and an exchange rate of ?379/$1. However, the benchmark oil price is fixed at $40 per barrel, up from the $28 per barrel approved in the revised 2020 budget. To account for the projected increase in crude oil price in 2021, the NASS requested the President to present a supplementary budget to fund critical areas of the economy. The President did not comment on those critical areas that will be covered in the supplementary budget.

Gross Domestic Product (GDP) growth is projected to be 3.0%, which is optimistic, considering that the Governor of the Central Bank of Nigeria projected a 2.01% growth rate, only a month ago. The inflation rate is projected to be 11.95% in 2021 – the inflation rate was 14.20% as at October 2020.

These projections are quite optimistic, even though the driver of the optimism is not obvious. Considering that Nigeria has entered into the second wave of the COVID-19 pandemic which may lead to new rounds of lockdowns in 2021, a conservative GDP growth rate and inflation rate projections would have been more appropriate.

The Budget at a glance

Conclusion

The incidence and severity of the second wave of COVID-19 appears to be the main factor that may vary the country’s 2021 revenue performance and expenditure from the budget. The government, therefore, needs to manage the second wave to avert potential adverse effects on our economy.

Overall, the implementation of the budget remains a major concern for the public. With the prompt passage of the Budget and 2020 Finance Act by the National Assembly and approval by the President, we expect that the FGN will focus on the full implementation of the 2021 budget to set the country on a path of economic growth and recovery.