2019 Budget Implementation: CBN Raises ₦8.5 Trillion Overdraft For FG
To finance the implementation of budget 2019, the Central Bank of Nigeria raised ₦8.5 trillion overdraft for the Federal Government as expected receipts from oil dropped in 2019.
The detail of the overdraft as revealed by the CBN’s fourth quarter 2019 report also point that government oil receipt under-performed expectation as projected in the spending plan.
In 2019, total revenue expectation of the government under-performed budget by more than 31%, thereby widened budget deficit.
According to available data, FG’s total expenditure of ₦9.4 trillion was financed by aggregate revenues of ₦4.8 trillion in the period.
This widened deficit to ₦4.6 trillion compare to deficit of ₦1.9 trillion that government had planned.
Meanwhile, the CBN is being accused of financing government which is against the provisions in the Central Bank of Nigeria Act 2007. Experts had raise lid on the unusual support that the current administration is getting from the apex bank.
Critics have argued that in its recent policies directives, the CBN has been seeing to be involving itself in government of the day’s jobs.
Some analysts alleged that apex bank leaders’ services to the Government other than usual monetary policies regulations was key to the CBN Governor, Godwin Emefiele re-appointment.
As at November when overdraft collected by Abuja was at ₦8.5 trillion, when compare with ₦5.4 trillion in 2018, the addition of ₦3.1 trillion translates to 57.41% increase.
In its quarterly report for the fourth quarter of fiscal year 2019, the CBN’s report also shows that federally collected revenues, which is shared among the FG, States and Local governments, rose 7.3% year on year to ₦10.2 trillion in 2019.
The report shows that Oil revenue continues to struggle, contracting 0.2% to ₦5.5 trillion with a reduced share of total revenue at 54.2% from 58.2% in 2018.
Analysts at Afrinvest said they suspect that the 10.0% contraction in oil prices to US$64.0/bbl. in 2019 more than offset the 5.1% expansion in oil production to 2.0mb/d as well as the performance from other sources.
However, government drive to diversified earnings base yield significant result in the period as non-oil revenue expanded 17.7% to ₦4.7 trillion, with a higher share of revenue at 45.8%.
“Although this suggests that the government’s revenue drive is on track, we believe this may be attributed to continuous economic recovery”, Afrinvest analysts held.
The Federal Inland Revenue Services (FIRS) aggressive drive to widen tax and increase collected resulted to uptrend around Corporate Income Tax (CIT) which rose 14.5% to ₦1.6 trillion.
Also, Value-added Tax (VAT) bloated by 7.2% to ₦1.2 trillion while customs and excise duties grew fastest at 18.7% to ₦837.4 billion.
“With the performance of FG’s 2019 budget, we notice that implementation was stronger than expected despite a huge revenue shortfall, Afrinvest said.
The CBN reported total expenditure of ₦9.4 trillion, which is the highest on record, although total revenue of ₦4.8 trillion under-performed budget by 31.4%.
The implication was a record-high deficit of ₦4.6 trillion, against the budget of ₦1.9 trillion.
Afrinvest analysts said they have reasons to doubt the expenditure estimate given that the Budget Office put spending at ₦5.8 trillion as at third quarter of 2019.
However, we note that CBN’s revenue estimates have always tracked actual numbers, Afrinvest held.
“As at third quarter of 2019, the Budget Ministry reported that the retained revenue of the FG was ₦3.0 trillion while revenue from special accounts contributed an additional ₦1.3 trillion for a total revenue of ₦4.3 trillion, indicating that CBN’s projected deficit may be far off the mark”, analysts said.
What makes up special accounts is unclear but we are certain that this does not include primary revenue sources as the CBN estimated revenue at ₦3.2 trillion as at third quarter of 2019.
Afrinvest’s revenue estimate for 2019 was pegged at ₦4.2 trillion with a fiscal deficit of ₦3.4 trillion.
“As the FG raised only ₦802.8 billion in the debt market in 2019 to fund its budget, we believe the CBN’s sustained monetisation of the deficit drove budget implementation”, analysts said,
The investment firm reckoned that in line with its recently published 2020 outlook, we believe the revenue challenges of the FG would persist in the near-term.
“The reprieve expected from the increase in VAT rate to 7.5% from 5.0% would only be marginal given the FG’s paltry share of 15.0%”, analysts at the investment stated.
It is believed that current evidence does not support the claim that land border closure would result in a significant revenue boost.
“Although revenue from special accounts provided a cosmetic lift in 2019, the sustainability of such an account is in doubt.
“Accordingly, we expect revenue collection to proceed at a moderate pace in 2020.
“The monetisation of deficit by the CBN, although likely to be sustained, continues to contravene the CBN Act (2007) with potentially serious implications for the economy if its growth continues at the current pace”, Afrinvest said.
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2019 Budget Implementation: CBN raises ₦8.5 Trillion Overdraft For FG
