April 21, 2021/Proshare

by FBNQuest Research

The latest CBN monthly report reinforces our often stated view on the FGN’s public finances. Expenditure is not running away from the budget targets. Indeed aggregate FGN spending in March-December 2020 exceeded the pro-rata monthly budget of NGN901bn once fractionally, another time by 11% and the third time by 22%. Underperformance was the norm. The deficit regularly overruns the target because revenue collection disappoints, which, in turn, is a consequence of overambitious projections. FGN retained revenue was set at NGN486bn per month in the 2020 budget and consistently fell short. The outturn was just NGN282bn in December. The shortfall reflects a lower-than-expected payout from the federation account, and zero payments from both excess non-oil revenue and miscellaneous inflows (ie special levies and accounts). 

Other than two months (March and October), capital spending was well below budget of NGN207bn in 2020. It soared to NGN479bn in January ’21 (see chart), which the FBN commentary explains as “the roll-over of capital spending” from the 2020 budget to the ministries, departments and agencies. Its 62.1% share of total expenditure in January, compared with 31.8% for recurrent items and 6.1% for transfers (a combination of both), should therefore be viewed as a one-off.   

Personnel costs are rising other than an anomaly in January, which suggests that the FGN is honouring the latest national minimum wage.  

In the 2021 budget the pro-rata monthly budget has been hiked by 25.6% from NGN901bn to NGN1.13trn. We expect another shortfall in spending because of underperforming revenue collection and a similar sequence of events to 2020’s, ie the deficit overshoots the target. The disappointment is likely to be greatest with capital items, for which the authorities hopefully project an increase of more than 70% to NGN4.37trn this year.  

We are commenting on broad trends, given that the data in this series is often revised and that the posting of expenditure items under the set categories can be surprising on occasions.  

There are also some striking differences with the series shared by the Budget Office of the Federation in its implementation reports, both in timing and definition. For example, the budget office, unlike the CBN, includes the FGN’s interest payments on its Ways and Means advances (its overdraft with the CBN) in its figures for debt service.

Monthly FGN spending (NGN bn)

Sources: CBN; FBNQuest Capital Research