According to the 2020 revised budget bill the Federal Government, through its 2020 Budget revision, has increased the budget deficit to ₦4.95 Trillion. However, it discarded the initial plan to reduce the 2020 Appropriation by ₦1.5 Trillion in what can be described as a tactical way to finance the increment to its recurrent expenditure.
The Russia-Saudi trade war coupled with the outbreak of Covid-19 has terribly impacted the price of crude oil. This has an immediate impact on the revenue projection of the government to finance the 2020 budget. The initial budget was prepared with an estimated oil production level of 2.18 million barrels per day (mbpd). This figure was reviewed to 1.19mbpd.
In addition, a recent report showed that the Federal Government adjusted the revenue downwards by 33.97 percent. Although, the total budget expenditure was reviewed downward by 0.80 percent. While the initial budget had ₦10.59 trillion as expenditure, the expected revenue was ₦8.42 trillion. Thus, the Federal government needed ₦2.17 trillion to meet up with its planned expenditure for the year.
With the new bill, while the government estimated ₦5.56 trillion revenue, it planned to spend ₦10.51 trillion. By implication, the Federal government will need ₦4.95 trillion to meet up with the proposed expenditure for the year. Overall, the budget deficit as passed by the National Assembly rose from ₦2.17 trillion to ₦4.95 trillion. This is ₦2.78 trillion more than the initial amount.
The Expenditure Paradox
Despite the glaring need for the reduction in the total expenditure to match the fall in revenue. The reviewed expenditure indicates a paltry N84.7 billion deduction. This has generated an N4.9 trillion deficit that will be sourced through borrowing.
| Item | As Passed (₦) | Revised (₦) | Difference (₦) | Percentage Change (%) |
| Budget Size | 10,590,000,000,000 | 80,345,966,946 | 10,509,654,033,054 | 0.76 |
| Revenue | 8,419,164,479,598 | 2,860,041,163,176 | 5,559,123,316,422 | 34 |
| Deficit | 2,170,835,520,402 | 4,950,530,716,632 | -2,779,695,196,230 | 128 |
The budget expenditure was barely touched as only ₦84.7 billion was removed from the initial one passed. Further insight shows that statutory transfer decreased by 28.69 percent, a ₦161.9 billion difference. Also, expenditure on debt servicing was reduced by 9.22% to N22.3 trillion. Recurrent and capital expenditures have 1.77 percent and 9.51 percent deductions respectively.
| Item | As Passed (₦) | Revised (₦) | Difference (₦) | Percentage Change (%) |
| Expenditure | 10,594,362,364,830 | 84,708,331,745 | 10,509,654,033,085 | 0.8 |
| Statutory Transfer | 564,470,827,235 | 161,964,847,873 | 402,505,979,362 | 28.7 |
| Debt Servicing | 2,452,598,930,000 | 226,211,070,000 | 2,226,387,860,000 | 9.2 |
| SinkingFund | 272,900,000,000 | 0 | 272,900,000,000 | 0 |
| Recurrent (Non-Debt) Expenditure) | 4,842,974,600,640 | 85,550,867,209 | 4,757,423,733,431 | 1.8 |
| Capital Expenditure | 2,465,418,006,955 | 234,505,421,113 | 2,230,912,585,842 | 9.5 |
These deductions did not reflect the initial claim to cut the budget by ₦1.5 trillion cut. It could be recalled earlier that the Finance Minister who identified the budget cut as the right response to revenue drop advocated for 14.5 percent drop as against the 0.80 percent finally removed. Furthermore, instead of a 20 percent reduction in capital expenditure as well as a 25 percent in recurrent expenditure as initially stated, the revised gave a 9.51 percent and 1.77 percent respectively.
Implications on the Economy
The new scenario has generated additional N2.78 trillion deficits. This has increased the total budget deficit to ₦4.95 trillion. With the existing debt profile of ₦21.896 trillion, and the revenue drop on the brink of the COVID-19, the country is bound for a contracting economy. According to a Dalberg report, there is every likelihood the GDP is sliding down by 4 percent on the moderate scenario.
The Micro, Small and Medium Enterprises (MSMEs) which are the base of the economy will likely experience the hardest hit. There will be limited access to finances, decreased consumption and limited investments. They are responsible for 77 percent of the country’s total workforce contributing 50 percent of the GDP.
Also, equity market will experience a negative impact due to the economic downturn. The fall in stocks market has been amplified since February and there are predictions of a negative return on the equity market at the end of the year.
Changing the Tides
The fall in oil prices has availed the country to consider the long-term investment to stabilize the economy. It has identified the needs to further diversify and take advantage of the opportunity to increase its competitiveness. A vigorous investment in power infrastructure and renewable energy will enhance power access to SMEs and manufacturing. This will have a tremendous effect on the foreign exchange reserve and create more jobs.
The continuous neglect in high potential sectors such as agriculture and technology-enabled sectors has to change. There is a need for increased investment in these sectors as they have the potential to generate high returns and reduce the dependence on crude oil. These investments could be achieved through additional stimulus funding and guarantee structures.