Culled—Proshare

May 15, 2020

by FBNQuest Research                                                                                   

The Federal Executive Council (FEC) has approved a revised 2020-2022 Medium Term Expenditure Framework and an amended 2020 budget, which can now be submitted to the National Assembly for approval and to the president for sign-off. Total FGN spending of N10.52trn (US$27.2bn) including government enterprises other than the NNPC and project tied loans is little changed from the original budget because of the sharp increase in concessional external financing, both already secured (US$3.4bn from the IMF) and sought (World Bank and others).

There have been some understandable revisions to the core assumptions for 2020, notably: average Nigerian crude price of US$25/b (cut from US$57/b in the original because of market developments); average crude production of 1.94mbpd (reduced from 2.18mbpd out of respect for Nigeria’s OPEC membership); and average exchange rate of N360 per US dollar (from N301 following the CBN’s rate adjustment in mid-March).

We are comfortable with the new price assumption when we allow for the start of the reversal of lockdowns in some important jurisdictions, the shut-in of sizeable shale oil production in the Permian Basin and the renewed output restraint of OPEC+.

The use of the preferential exchange rate of N360 sends mixed signals since the authorities have been heard to say that they are working towards the unification of rates. It could be justified by its use for imports of petroleum products.

Total revenue now stands at N5.16trn, compared with N8.42trn in the original budget. The FGN’s share of oil and non-oil revenue together came to N4.57trn in the original. The large residual balance was covered by some ambitious projected flows from the ten largest government enterprises (N990bn), signature bonuses/early renewals (N940bn) and the FGN’s share of balances in special accounts (N650bn). We also note that the earlier projected N2.64trn for oil revenue (based upon US$57/b) is now unattainable. We might also query the earlier figure for non-oil inflows since the original document (dating from December) assumed GDP growth of 2.9% this year.

The amended budget has a deficit of N5.37trn. The main financing components are the concessional funding already mentioned (N2.48trn at N360) and borrowing through the best efforts of the DMO (N1.59trn and now all to be raised domestically).

After the FEC meeting, the federal finance minister mentioned the drawdown of some already committed project loans and of some special accounts as well as privatization proceeds as other financing items. The detail is thin at this stage although we see that the original budget forecast financing flows of N250bn from asset sales and N330bn from tied project loans.