Hydrocarbon Revenue: Nigeria to Breach 2024 Budget Deficit – Report
Nigerian government will likely ramp up more borrowings as uncertainties in the global commodities market saw crude oil price benchmark tank below expectation. It is not only that prices have been fluctuating below expectation, oil production volume has continue to trailing target.
With an expectation to boost the economy with expansionary fiscal focus, 2024 budget was prepared using $77.96 as price target for 2024 with production volume of 1.78 million barrels per day.
For most part of the year, production volume has remained depressed on the back of low investment in oil assets. This has made fiscal performance underwhelmingly safe for the positive impacts of naira devaluation that continue to give false hope about revenue growth.
But the devaluation which raised federal allocation also increased debt services costs on total public debt. On the crude oil price, the global commodities market has seen price fluctuation with concerns that transition to gas for automobile could be downside to future of oil.
Crude oil prices have been fluctuating both side, matching head and tailwinds to create crosswind for the nation struggling to keep growth ahead of population surge.
According to data from the crude oil market, bonny light crude oil has nosedived below $75 per barrel on the average. The slowdown in crude oil grade is expected to affect Nigerian government revenue target to finance budget 2024, analysts said in separate notes.
The nation’s budget deficit would widened due to lower oil production in the year. This has become a pattern year on year with capital projecting being casualty of fiscal poor performance.
Nigeria prepared the country’s 2024 spending plan using estimates that have significantly deviated from expectation.
The 2024 FGN Budget, titled “Budget of Renewed Hope,” was signed by President Bola Ahmed Tinubu on 02 January’24 with some few revisions.
For a country of between 230 to 250 million population, the authority set total budget for the year at N28.7 trillion, which is 11.9% or N1.2 trillion, higher than the initially proposed N27.5 trillion.
The budget figure is 15.9% higher than the 2023 FGN budget of N24.82 trillion – of which a huge portion of capital expenditure failed to be executed by the authority.
In its mid-year economic report, Coronation Research stated that allocation to capital expenditure in the approved 2024 budget rose by 13.8% to N9.9 trillion, accounting for 34.5% of the total expenditure, compared to the initial proposed figure of N8.7 trillion.
The firm stated that the increased capital spending aligns with the FGN’s intent to reduce the country’s infrastructure deficit gap.
In the report, Coronation Research noted that the 2024 budget estimates point towards a fiscal deficit of N9.1 trillion, which is considerably lower than N13.8 trillion estimated in the 2023 FGN budget.
Recall that Federal government’s estimated revenue to fund the 2024 budget was revised upward to N19.6 trillion, 78.2% higher than the 2023 provision of N11 trillion.
The mid-year report said the breakdown of this revenue estimate shows that N9.2 trillion or 46.9%, expected from oil-related sources while the balance of N10.4 trillion or 53.1% is expected from non-oil sources.
The revenue projections point towards expectations of improved revenue inflow, on the back of the removal of PMS subsidy, fx depreciation following the fx liberalization policy, and increased collection of non-oil taxes.
“We expect the FGN to exceed its 2024 budget deficit of N9.1 trillion”, Coronation Research said in mid-year economic report.
Given that international capital market remains expensive for emerging economies like Nigeria, experts at Coronation Research expect domestic issuances to exceed projected FGN estimates.
The 2024 federal budget which was passed in early January, has planned for a fiscal deficit of N9 trillion, down from the 2023 budget of N11.34 trillion, which represents 3.8% of budgeted GDP.
The budget is based on a reasonable oil price estimate of $78 per barrel, but an ambitious oil production volume target of 1.78 mbpd, according to S&P Ratings with $85 per barrel crude oil price forecast.
The firm stated that Nigeria’s high debt-servicing costs and security-related spending will continue to weigh on fiscal dynamics, leaving reduced funds for capital investment, infrastructure development, or social safety nets.
Nigerian government plans to issue domestic naira-denominated Federal Government of Nigeria bonds to finance the majority of the 2024 deficit, with budgeted borrowing reduced compared to 2023, with the rest in foreign financing split between concessional multilateral and bilateral external financing, and commercial borrowing.
The Debt Management Office was able to raise the total planned New Domestic Borrowing of N7 billion in the 2023 Appropriation Act in full during the year, at an average subscription rate of 172% at levels below the monetary policy rate, S&P Ratings said. #Hydrocarbon Revenue: Nigeria to Breach 2024 Budget Deficit – Report
