August 16, 2021/Proshare

by FBNQuest Research 

We see from the CBN’s Quarterly Statistical Bulletin (QSP) for Q1 ’21 that the fiscal operations of the Federal Government of Nigeria (FGN) resulted in a deficit of NGN2.4trn, up from c.NGN1.6trn in Q4 ’20 (NGN1.4trn Q1 ’20). In more relatable terms, the deficit widened to c.6.1% of GDP in Q1 compared with 3.6% in Q4 ’20, and 4.0% in Q1 ’20. Worth mentioning is that the deficit is tracking ahead of the 3.9% envisaged in the 2021 budget. The wider deficit relative to the benchmark can be explained by a lower revenue outturn compared with the pro-rata share of budgeted revenue. The data is sourced by the CBN from the Office of the Accountant-General of the Federation. It is provisional and could be revised in the future. 

In Q1, the FGN’s retained revenue of NGN904.3bn was down c.-9% y/y and fell short of the pro-rata budget benchmark by c.-55%.  

As with prior years, the FGN’s revenue projection (ex- the supplementary budget) for 2021 is ambitious at NGN7.99trn, and implies a pro-rata quarterly run-rate of almost NGN2.0trn. Again, similar to previous years, we believe that actual collections on key revenue headline items is likely to fall short of budgeted forecasts. 

For instance, the FGN anticipates it will earn c.NGN2.7trn from government-owned enterprises (GOEs), despite the source’s weak track record. We recall that in FY ’20 the FGN’s expected revenue take from GOEs was c.NGN990bn. However, no revenue was generated from the source, according to the Q4 ’20 budget implementation report.  

Total expenditure in Q1 was NGN3.38trn, which is roughly in line with the NGN3.39trn quarterly budget run-rate. Personnel costs (incl. pensions) came in c.5% below the budget but increased 9% y/y. We attribute the increase to the FGN’s implementation of the national minimum wage.  

In contrast to historical trends, we observe a marked increase of 670% y/y in capital expenditure to NGN1.1trn. The sum is c.4% higher than the pro-rata budget quarterly run-rate of NGN1.0trn.  

Two plausible explanations for the marked rise include the roll-over of capital spending from the 2020 budget, and the current administration’s urgency to complete its “legacy” infrastructure projects given the limited time left before the kick-off of the electoral calendar. 

The recent approval of the supplementary budget, which provides for additional expenditures of NGN983bn and revenue of just NGN135bn, takes the implied fiscal deficit up to 4.5%. Given the poor track record on revenue collection, the actual deficit will be considerably north of 5%.

 Fiscal operations of the FGN (NGN ‘bn)

Sources: CBN; Office of the Accountant General of the Federation; FBNQuest Capital Research