January 26, 2023/United Capital Research
According to the Budget Office of the Federation, revenue generation remains the major fiscal constraint of the Federal Government. Notably, revenue performance printed at 77.6% of the budgeted revenue, as total revenue between Jan – Nov 2022 stood at N5.9tn. Non-oil revenue performance stood at 100.9%, driven by the strong performance in the collection of Company Income Tax (CIT) (129.8% of its target) and Value Added Tax (VAT) (101.7% of its target). On the other hand, oil revenue underperformed by 70.8% to print at N586.7bn vs projected N2.0tn in the period under review. The underperformance is mainly due to PMS subsidy payment and weaker than projected oil production, with crude oil production averaging 1.38mbpd as of Nov-2022 (compared to the budget benchmark of 1.60mbpd). The NNPC and FGN blamed the reduced output on theft and production downtime. Notably, the oil revenue segment continues to disappoint despite crude prices being above the benchmark of $70.0 (Brent crude averaged $99.0 in 2022).
As a result of the weaker-than-expected revenue, the Federal Government has consistently relied on a mix of domestic debt and CBN overdrafts to fund the shortfalls. Notably, domestic debt stock rose by 18.2% y/y to N21.5tn in 9M-2022 compared to its print of N18.2tn in 9M-2021, while debt to CBN rose N6.3tn in 2022. The rising debt profile remains a worry for the country as the FG spent N5.2tn on debt servicing payments between Jan-Nov 2022. This represents 43.7% more than the projected sum and 89.5% of the total revenue generated during the period.
That said, the Federal Government’s fiscal position remains weak and would require significant improvements to achieve its ambitious targets. Notably, the 2023 budget deficit is estimated at N11.3tn, while projected revenue prints at N11.1tn. We expect strong non-oil revenue performance supported by the higher VAT rate and tax collections. Also, we see possibilities of improvement in oil revenue as oil price remain above budget benchmark while output has shown signs of improving in recent months. In addition, how the government handles fuel subsidy will play a major role. That said, we remain cautious on the government’s ability to achieve its revenue targets which will consequently raise the country’s budget deficit as ambitious spending persists.
