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FG cuts N1.5trn off 2020 budget, says no recruitments, no retrenchment

By Chesa Chesa

The Federal Government on Wednesday announced a downward review of the N10.59 trillion 2020 budget by N1.5 trillion, owing to the crash of global crude oil price in the wake of the Coronavirus pandemic.

Minister of Finance, Mrs. Zainab Ahmed, disclosed this at the end of the Federal Executive Council (FEC) meeting chaired by President Muhammadu Buhari.

Ahmed said that the government also resolved to embargo recruitment into the civil service, but pledged not to engage in any mass sack or retrenchment of workers as a result of the dwindling resources, as being feared in some quarters.

According to her, government workers will continue receive their salaries and other entitlements as and when due just like government pensioners.

Breaking down the slash of the N10.59 trillion 2020 budget, the minister said that out of the N1.5 trillion removed, N587 million was slashed from oil product under-recovery budget (oil subsidy).

She added that the Council approved the cut of the capital and recurrent budget by 20 per cent and 25 per cent, respectively.

According to her, “we should cut down on the size of the federally funded upstream projects of the petroleum sector. The reason being we want to be able to receive more revenue by less reduction from NNPC.

“The reduction of the crude oil price from $57 per barrel that we budget to $30 means that we are going to get so much less revenue almost 45 per cent loss as we planned.

“And because of that we have to amend a number of projections in the budget as well as in the MTEF to reflect our current reality.

“We also need to adjust Customs revenue which has been budgeted at N1. 5 trillion but we are adjusting it downwards because we anticipate that trade volumes will reduce and once trade volume is reduced, Customs revenue will be significantly impacted as a result.

“On the expenditure size, the President has approved that we should cut down the capital expenditure budgeted by 20 per cent across Ministries, Departments and Agencies and also on 25 per cent cut on all government owned enterprises.

“This includes the ones that are in the national budget, the ten top ones that we included in the 2020 budget but also the ones we didn’t include in the 2020 budget.

“The administration is to stop recruitment except for essential services such as security and health services and to also comply by the civil service retirement regulations.”

She further explained that “what we have done is that we have written every Ministry and given them guidelines on how these adjustments will be made to enable us have detailed imputes from the ministries.

“But I can just say that the bulk cut is about N1.5 trillion, the reduction in the size of the budget. And this includes N457 billion from PMS under-recovery.

“On how much it affects the federally funded upstream projects, it is about 25 per cent cut. The exact amount we will be worked out when we get inputs from the ministries, departments and agencies.”

On concerns of the economy slipping back into recession, Ahmed said: “Of course we have concerns. This is resulting in about 40 to 45 per cent reduction and also it will affect the states because it means FAAC will be significantly reduced.

“FAAC is just a pool of funds and we share what is realized, so it will affect the states as well. But we are expecting the states to take similar measures to amend the plans that we have made and bring them down to current realities. It is just a question of deferring some nonessential expenditure so that when things turn we might actually go back to our plans.

“On plans to scale back VAT and Excise Duty, I am not making any commitment on that right now because these are provisions in the law in the Finance Act and as you know we will even in the amendment to the MTEF and the budget have to engage with the National Assembly.

“The fiscal authorities are working on with the fiscal authority team and we will get Mr. President’s approval before we come up with what we will announce to the public.

“On recruitment, there is already an instruction to stop recruitment. What the agencies have been doing is replacement but even that is being suspended.

“When things improve we will go back to the issue of recruitment but for now, our wage bill is already very high. The president has directed that salaries and pensions must be paid unfailingly, so we are not looking at downsizing in anyway. We are maintaining our workforce as it is but we are just stopping the increase in the size of the nominal roll.”

Speaking on the benchmark, she said, “we are working on the worst case scenario of $30 per barrel and also we are holding to the production numbers of 2.18 million barrels per day, as approved by the National Assembly. This is our own analysis and we will start engaging the National Assembly.

“On the implications for budget deficit, what this means is that our deficit will increase. Our current deficit in the 2020 budget is N1.8 trillion. With the decline in revenue and even with the adjustment in expenditure the deficit increases.

“That is why we have to engage the National Assembly to ensure we stay fiscal the fiscal limits as defined in the fiscal responsibility act.

“It might go up by N1.5 trillion but it depends because the details of the cuts are not yet out. We might also decide to amend the threshold but on the fiscal side we have decided to care the worse case scenario and that is $30 per barrel. You know that today the price has gone up to about $32 per barrel but we are still staying at $30 to be on the safe side.”

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