November 28, 2023/FBNQuest
The recently released Quarterly economic report from the Central Bank of Nigeria (CBN) shows that the FGN’s fiscal operations resulted in a lower fiscal deficit of -NGN2.8trn in Q2 ’23, compared with -NGN4.3trn in the previous quarter. However, the figure was slightly higher than the fiscal deficit of -NGN2.2trn recorded in the year-earlier period and the pro-rata quarterly budget benchmark of NGN2.7trn.
Underpinning the lower q/q fiscal deficit was an increase of 24% q/q in retained revenue to NGN1.7trn. However, the figure was markedly below the quarterly budget benchmark of NGN2.8trn.
The improved government revenue outturn is mostly attributable to higher collections from FGN independent revenue.
Another contributory factor to the reduced fiscal deficit was a -21% q/q reduction in the total expenditure to NGN4.5trn. it was also lower than the pro-rata quarterly budget benchmark of NGN5.5trn.
The sharp drop in the government’s total expenditure was primarily due to a significant fall in the capital expenditure to NGN578bn from NGN1.8trn in Q1 ’23.
In contrast, recurrent expenditure, which accounted for c.83% of total expenditure, increased 3% q/q to NGN3.7trn, mostly because of a 23% q/q increase in debt service cost to NGN2.1trn.
On a cumulative basis, the government’s fiscal operations for Jan-Jun ’23 imply total revenues and expenditure of NGN3.1trn and NGN10.2trn respectively, resulting in a larger deficit of –NGN7.0trn.
The data also shows a statutory transfer amount of NGN205.9bn and a primary balance (ex-debt service cost) of -NGN649.9bn.
Looking ahead, we expect to see an expansion in the FGN’s retained revenue due to a greater contribution from the federation because of the downward adjustment of the Nigerian Naira.
However, we expect the higher revenue pool to be eroded by the anticipated rise in the government’s expenditure. That said, we anticipate that the fiscal deficit will rise going forward.
