Culled—Proshare

July 2, 2020

by FBNQuest Research

The 2020 budget approved by the National Assembly on 11 June has a deficit equivalent to US$13.8bn. This includes government-owned enterprises (GOEs) and project-tied loans from multilateral/bilateral partners. New borrowing of US$11.6bn is the main funding source, divided between domestic (US$6.1bn) and external (US$5.5bn). The interest rate differential favouring external borrowing has greatly diminished in recent months in line with FGN bond yields. In any event, the authorities had decided not to issue Eurobonds this year, and to rely on concessionary loans.                     

We understood earlier that the DMO has a domestic funding target for the year of N1.60trn, which, at the average exchange rate of N360 assumed in the budget, would point to a slightly lower figure of US$5.8bn.

A US$1.5bn loan from the World Bank is under discussion whereas the African Development Bank (AfDB) has approved the release of US$290m of the US$500m loan requested. We hope that we will not see an action replay of 2015 and 2016, when the AfDB made a part disbursement and the World Bank released nothing because, it was rumoured, it had reservations over the CBN’s list of 41 import items for which it would not supply fx.

The projections have non-debt financing flows from privatization this year and next, and from sales of FGN property in 2021. The outturns show no such inflows in 2017, 2108 and 9M 2019.

Projected funding sources in 2020 budget (% shares)

Sources: Federal Ministry of Finance, Budget and National Planning; FBNQuest Capital Research

Excluding GOEs and project-tied loans, the projected deficit this year stands at 3.3% of GDP. In its investor presentation (Good Morning Nigeria, 25 June 2020), the ministry observes that a deficit above the 3.0% cap in the Fiscal Responsibility Act (FRA) 2007 was approved on an exceptional basis (the virus). It falls below the ceiling in subsequent years (2.4% in 2021 and 1.8% in 2022).