December 21, 2023/FBNQuest Research

According to the latest monthly economic report from the CBN, the federal government of Nigeria (FGN) recorded a fiscal deficit of –NGN727bn in its fiscal operations for Aug ’23. This compares with a fiscal deficit of -NGN816bn in Jul ’23 and –NGN593bn recorded in the year-earlier period. The narrower fiscal deficit m/m was mainly due to a 10% m/m increase in the FGN’s retained revenue to NGN618bn in Aug ’23. Despite the m/m rise in revenue, the retained revenue still fell short of the monthly budgeted benchmark of NGN920bn.

Turning to the revenue drivers, the m/m increase in revenue was driven mainly by increases of 30% m/m and 12% m/m in revenue distribution from the federation account and FGN revenue to NGN191bn and NGN244bn, respectively.

Retained revenue also benefitted from a NGN141bn inflow from exchange rate gains, around 10% lower than the exchange rate gain registered in Jul ’23.

With respect to expenditure developments, the FGN’s aggregate expenditure declined modestly by -3% m/m to NGN1.3trn. It also outperformed the budget benchmark of NGN1.8trn.

Notably, non-debt and debt service components of recurrent expenditure declined by -3% m/m and -19% m/m to NGN458bn and NGN434bn, respectively.

Following the decline in debt service cost, the debt service to revenue ratio fell to around 70.2% in Aug ’23 from 95.3% in the previous month.

Capital expenditure increased by 28% m/m to NGN370bn. As such, its share of overall spending rose to 27% from 21% in Jul ’23.

Cumulatively, the FGN’s retained revenue and expenditure amounted to NGN3.7trn and NGN8.6trn over the 8M period to Aug ’23, implying a fiscal deficit of NGN4.9trn.

When annualised, the fiscal deficit over the 8M ’23 period implies a deficit to GDP ratio of c.3.2%. This is currently tracking below the 6.1% envisaged in the budget.

Looking ahead, the 2024 budget proposals indicate aggregate revenue and expenditures of NGN18.3trn and NGN27.5trn, implying a fiscal deficit of NGN9.2trn, or 3.9% of GDP.