October 20, 2022/FBNQuest

The most recent Budget implementation report for Q2 ‘22 once again highlights the poor performance of federally collected revenue in comparison with budgeted expectations. The report shows that gross federally collected revenue amounted to NGN5.4trn in H1 ‘22 or c.-32% below the pro-rata budget forecast. The primary source of the underperformance was oil revenue, which brought in total revenue of almost NGN2.2trn, around -54% below the H1 ’22 budget projection of NGN4.7trn. In contrast, non-oil revenue at NGN3.2trn was broadly in line (-3%) with the pro rata budget benchmark. 

The link between oil revenue underperformance and low oil production has been extensively covered by local and international media. According to data from the CBN, Nigeria’s oil production averaged roughly 1.2 million barrels per day (mbpd) in H1 ’22, much lower than the 1.6mbpd assumed in the 2022 budget.

In terms of non-oil revenue, corporate tax revenue inflow of about NGN1.2trn surpassed the half-year budget target by roughly 19%. The positive revenue outturn is due to improved efficiency in tax collections and a widening of the tax base.

Revenue from value-added-tax (VAT) of NGN1.2trn was slightly (-3%) behind the budget estimate. However, aggregate revenue from other sources, including electronic money transfer levies, special levies, and other revenue from the federation account fell short by 22%.

After deductions such as joint venture cash calls, and other collection costs, the net distributable revenue available for sharing among the three tiers of government amounted to just NGN3.3trn. This leaves a significant gap of NGN2.1trn compared with the half-year forecast in the budget.

Notably, net oil revenue (after all deductions) amounted to a pitiable low figure of NGN242bn. There is a yawning gap between this figure and the NGN2.3trn envisaged in the budget.

A significant deduction from gross oil revenue is a sum of NGN1.7trn which is attributed to federally funded upstream projects.

Net non-oil revenue was c.NGN3.0trn, including c.NGN1.1trn in revenue from the VAT pool.

When annualised, the gross federally collected revenue of NGN5.4trn implies a revenue-to (2021) GDP ratio of 6.2%. This is quite low compared with peers like South Africa, Kenya, and Ghana with ratios of 28.1%, 16.8%, and 13.8% according to World Bank data.