July 15, 2021/Proshare

 By FBNQuest Research  

Today’s chart is drawn from the implementation report for Q4 ’20, produced by the Budget Office in conjunction with the Office of the Accountant-General of the Federation. The report is less timely than the CBN’s fiscal data but provides much more detail and includes non-tax inflows such as intra-governmental transactions. For example, FGN inflows of NGN550bn arising from transfers from special levies accounts in 2019 help to explain why the total of NGN3.42trn in 2020 lagged the NGN4.41trn collected the previous year. (The budget for last year was as high as NGN5.37trn.) The recession in 2020 was another reason, evident in the 8% decline in the take from company income tax (CIT) and the 20% fall in the FGN’s share of non-oil revenue. Drilling down into the data in the report, we identify several areas of potential improvement by the authorities. 

The category of others in the chart includes the FGN’s share of VAT receipts. Unlike with CIT, the formula for the distribution from the VAT Pool favours the states rather than the FGN. We can see from the report however that gross VAT receipts (ie before distribution) rose from NGN1.19trn to NGN1.53trn in 2020, reflecting the hike in the standard rate from 5.0% to 7.5% with effect from Q1.  

Further hikes to bring Nigeria towards the 15.0% rate prevailing elsewhere in the Economic Community of West African States have been recommended by the IMF and World Bank.  

Inflows from signature bonuses and renewals decreased from NNGN350bn to NGN120bn last year. The recent progress of the petroleum industry bill in the National Assembly may bring an improvement this year, failing which 2022.  

We are surprised to see a nil entry for domestic recoveries, assets and fines. The same is true of stamp duty.  

This underperformance on revenue inflows in 2020 drove the soaring FGN deficit, which climbed from NGN4.18trn in 2019 to NGN6.60trn. Domestic borrowing covered NGN2.06trn but the balance appears to have been “unfunded” from, we assume, Ways and Means Advances from the CBN.  

Another large deficit of NGN5.60trn beckons this year according to the 2021 budget. On past form, the outturn is likely to be higher. The Debt Management Office is mandated to raise NGN2.34trn from both domestic and external sources. It is comfortably on track to hit the domestic target (Good Morning Nigeria, 25 June 2021) and has plans in place for the external portion.

FGN revenue inflows 2020 (% shares)

Sources: Budget Office of the Federation; FBNQuest Capital Research