August 30, 2018/InvestmentOne Report
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· In a continuation of what has become ‘business as usual’, the proposed N8.61trillion 2018 budget, like the others under the current administration, was delayed. While an enlarged budget, 6% higher at N9.12trillion, was passed in June 2018, six months after its proposal, we are unlikely to see its full implementation.
· Nonetheless, with the national budget passed into law, we expect commencement and increased economic activity in H2 2018. The approval and implementation of the budget should support the government’s spending capacity and show the direction of government.
· The performance of Federal Inland Revenue Service (FIRS) in H1 2018 seems to be conveying some hunk of positivity. According to the reports from the revenue generating body, the agency has been able to improve its H1 2018 revenue by 41% to N2.52trillion compared to H1 2017.
· The FAAC disbursement for each month in Q1 2018 was higher on y/y basis; the reason for this was likely the favorable price of Brent Crude oil in the global market, which has averaged US$67 per barrel in Q2 2018 compared to US$53 per barrel in Q1 2018.
· However, we draw attention to the issues concerning payment of salaries in most states, with the backlog of civil servants ranging from two to six months. Furthermore, States not owing salary are lagging behind in payment of pensions and gratuity. All these point to the fact that, the current level of internally generated revenue, combined with the FAAC monthly allocations, is not enough to settle and cover the financial needs of the states. Therefore, it may not be enough to boost IGR to allow states to meet their obligations but more importantly, to move away from dependence on FAAC disbursements.
· Following a decade long battle for debt relief, Nigeria was put out of its debt grief as total debt was reduced to N2.22 trillion in August 2006. Another decade after, Nigeria’s public debt wildly rose to N22.3 trillion as at H1 2018 with domestic debt amounting to N15.63 trillion.
· According to the Finance Minister, Kemi Adeosun, Nigeria Debt to GDP ratio stood at 21% as at Q1 2018. With debt growing by 37.3% y/y in H1 2018 and GDP growing by 1.75% y/y in H1 2018 we expect to see a rise in Debt to GDP ratio in the short to medium term.