Budget: Analysts Express Concern over Optimistic Revenue Projection
Amidst weak economic temperature, analysts have expressed concerned over optimistic revenue projection in the budget proposal for 2021.
The Federal Government of Nigeria is expecting total income valued at N7.88 trillion in 2021 amidst weak macroeconomic performance, outlook.
This is against FG historical revenues performance as Nigerian government is not known to be strategic about raising revenue side without external influence.
The nation’s gross domestic performance growth level has direct correlation with movement in global price of oil.
Nigeria has been noted to do well in term of GDP growth rate when oil price trend higher with substantial production volumes.
The fact that government is following a high optimism wave at the time when there is high level of uncertainties in the global economy worsen the outlook.
In a note, CSL Stockbrokers Limited said that revenue trend over the past 5 years (excluding 2020) averages 58.8% which reflects significant underperformance
On a positive note, analysts said early passage of budget plan for 2020 is positive for the Nigerian economy.
“We think the early passage of the budget would bode well for capital expenditure distributions as seen in 2020 with N1.2 trillion released for capital spending as at September 2020”, the firm noted.
Sequel to the approval of the 2021 budget at the Federal Executive Council (FEC) Meeting, President Muhammadu Buhari presented the 2021 budget to a joint session of the National assembly yesterday.
CSL said the budget is expected to accelerate the economy’s pace of recovery from an imminent recession, promote diversification, enhance competitiveness and ensure social inclusion.
The budget was based on benchmark oil price of US$40 per barrel, production estimate of 1.86mbpd (inclusive of 300kbpd – 400kbpd condensates), exchange rate N379/US$, with 3% GDP growth and Inflation rate of 11.95%.
Analysts also noted that inflation rate has been following an uptrend in the last 12-month, and projected to rise further.
In August, inflation reading settled at 13.32%, but analysts are seeing a higher figure at year end as government effects some policies.
FG’s N13.08 trillion budget proposal is expected to be financed by revenue of N7.88 trillion.
This implies a budget deficit of N5.20 trillion which would be financed mainly by borrowings of N4.28 trillion, privatisation proceeds of N205.15 billion and finally project linked bilateral & multilateral loans of N709.69 billion.
The expenditure estimate is expected to be divided across capital expenditure of N3.85 trillion, recurrent expenditure of N6.11 trillion and debt service cost of N3.12 trillion.
On revenue, analysts said key contributors to revenue include oil which is expected to generate N2.01 trillion and non-oil revenue is expected to bring N1.49 trillion.
In addition, government expects N208.5 billion from the Nigerian Liquefied Natural Gas NLNG, while independent revenue is to contribute N961.9 billion,
Others are N2.17 trillion from government owned enterprises (GOEs), N2.65 billion from Minerals & Mining and N1.04 trillion from various sources.
“We are a little pessimistic on the Federal government’s ability to achieve its revenue target of N7.88 trillion in 2021, the highest in the history of Nigeria”, CSL Stockbroker stated.
The firm based its opinion on the government’s historical revenue performance and current economic realities.
In the President’s budget presentation speech, he highlighted that as of July 2020, only 68% of target revenue had been achieved.
The firm reckoned that this is happening despite the lower revised revenue target built on an oil benchmark price of US$28/bbl.
Furthermore, current realities point to the possibility of a second wave of the coronavirus which threatens Brent price recovery especially in the light of gradual relaxation of OPEC+ cuts.
“We are concerned with the government’s rising deficit budget.
“While we acknowledge the need to pursue an expansionary fiscal policy under current economic conditions, it comes at the detriment of long term fiscal sustainability”, the firm stated.
CSL Stockbrokers explained that the budget deficit for 2021 sums up to 3.64% of GDP which exceeds the Fiscal Responsibility Act’s limit of 3.0%.
It however noted that the federal government typically exceeds its budgeted deficit for a budget year.
Nigeria’s government already had a budget deficit of N3.27 trillion at the end of July 2020 which if annualised, may bring the budget deficit to N5.61tn by the end of 2020.
This compared with the budgeted N4.95 trillion, except there is better fiscal prudence in the second half of the year.
“The overall implication of this is the impact on the government’s actual debt service to revenue ratio which is becoming unsustainable”, analysts at CSL Stockbrokers Limited explained.
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Budget: Analysts Express Concern over Optimistic Revenue Projection
