July 29, 2021/United Capital Research

In July-2021, the Minister of Finance submitted the draft 2022 – 2024 Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) laying out proposed budget estimates for the next three years. However, the document provided insights into the government’s budget implementation performance for the first five months of the year (January to May 2021).

Overall, revenue performance printed at a disappointing 67.0% of budgeted revenue, the lowest level in three years as total revenue for Jan – May 2021 stood at N1.8tn. Impressively, Non-oil revenue performance stood at 99.7% driven by overcollection on Company Income Tax (CIT) and Value Added Tax (VAT). That said, Oil and Independent/Other revenue segments disappointed significantly, as the government generated 50.1% and 62.5% of its projected revenue numbers, largely due to weaker than projected oil production, with crude oil production averaging 1.72mbpd in Q1-2021 (compared to budget benchmark of 1.86mbpd). Although crude oil price benchmark of $40.0/b continues to be outperformed, as average crude price currently prints at $74.85/b, the impact is not felt on oil revenue as the FG cannot recognize and spend revenue beyond the budget benchmark with the rest being saved for rainy days. Overall, the Federal Government’s revenue position remains weak and would require significant improvements to achieve its ambitious targets.

Looking ahead, we expect the government’s revenue fortunes to improve slightly in coming months. First, we expect the OPEC+ cartel decision to ease production cuts will give Nigeria more room to raise production. For Non-oil revenue, we expect the sustained recovery in economic activities will continue to support tax collections while the higher VAT rate would provide further support. 

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