The 2021 budget proposal presented on 8 October by President Muhammadu Buhari to both houses of the National Assembly is arguably the most realistic spending plan put forward by this administration yet. Key assumptions underpinning the budget are more conservative than in previous years, which lends the budget proposal credibility. This new-found fiscal conservatism also informs revenue targets. As the impact of the Covid-19 pandemic has focused minds in Abuja, it appears as though the reformist camp around Vice President Yemi Osinbajo is regaining some traction. However, this has yet to extend to trade and exchange rate policies.
The draft budget envisages spending of NGN 13.08trn (USD 33.9bn) in 2021, representing a 21% nominal increase over the revised 2020 budget of NGN 10.81trn. The revenue target of NGN 7.89trn (USD 20.4bn) is close to this year’s pre-Covid-19 projections. While still a stretch against the backdrop of tumbling revenues this year, by Nigerian government standards, which share a long history of setting unrealistic revenue collection targets, the current estimate is on the conservative end of the spectrum. The remaining deficit is to be financed by borrowing from domestic and external sources amounting to NGN 4.28trn (USD 11bn) in domestic and external borrowing, against NGN 5.4trn in 2020 from domestic and concessional sources.
Underpinning the budget are assumptions regarding an average crude oil price of USD 40 per barrel, crude production of 1.86mn barrels per day and inflation averaging 11.95% in 2021 – all of which seem much more realistic than in previous years. While the oil production target is notably above Nigeria’s 2021 quota of 1.579mn barrels set under the OPEC+ agreement, Abuja has a habit of fudging respective OPEC rules.
The budget proposal as well as several other recent economic reform projects – most notably the removal of the fuel subsidy, an electricity price hike (though temporarily suspended), and the Petroleum Industry Bill (PIB) – certainly suggest that the rapidly deteriorating fiscal situation amid the Covid-19 pandemic and its impact on global oil prices has focused minds in Abuja. Furthermore, it looks as though the reformist camp around Osinbajo has regained some traction following the death of Buhari’s chief of staff Abba Kyari earlier this year. Ironically, liberal reforms proffered by the Economic Advisory Council (EAC) installed by the late chief of staff in 2019 – partly to outmaneuver the vice president – appear to be filtering through only after Kyari’s demise.
Nevertheless, the persistent closure of all land borders for trade since mid-2019, as well as the tightly regulated exchange rate should serve as stark reminders that there remain opposing forces to the reformist camp, notwithstanding the current momentum.