Nigeria’s Revenues Miss to Raise Budget Deficit by 73% – Analysts
The budget deficit for 2024 has been estimated to increase by 73% as Nigeria’s government revenue target underperformed by more than 35% in the first eight months of fiscal year 2024, according to Afrinvest Limited.
The weak revenue performance caused a drag on 2024 budget financing with strong local borrowing from the debt capital market. Data from the Nigerian Upstream Petroleum Regulatory Commission revealed that the country is behind its production target as of Oct., 2024.
At the same time, oil prices fluctuated strongly, deviating from initial expectations, though analysts said some of the assumptions were more reasonable than what Nigeria has seen in the recent past. Sustained growth in budget deficit funding has been driving total public debt higher, and devaluation of the naira has pushed debt service costs upward.
The higher interest payment on public debt reflects fast-changing market dynamics. The market is demanding higher interest rates on debt instruments to compensate for Nigeria’s worsening consumer price index.
This, plus the naira devaluation, increased debt costs, which is also projected to increase further as the government continues to ramp up more borrowing from local and international debt markets. Last week, the Debt Management Office announced that the country successfully raised $2.2 billion in Eurobonds to support the 2024 budget deficit.
The amount, which translates to N3.7 trillion in local currency, was raised from two maturities: a 6.5-year Nigeria 2031 Eurbond note worth $700 million and a 10-year Nigeria 2034 Eurobond note totalling $1.2 billion.
DMO said stop rates for 6.5-year Eurobonds was priced at 9.625% and 10-year note attracted 10.375% per annum, respectively. “The freshly raised loan amounted to about N3.7 trillion at an exchange rate of ₦1,670/$ – was said to be meant to finance the 2024 fiscal deficit.
“Based on the recently approved 2025-2027 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), the new borrowing alone is 2.1x the size of foreign borrowing that was N1.8 trillion budgeted for 2024…
“This reality is not surprising given that actual revenue between January and August, ₦12.7 trillion, is 35.4% short of the pro-rata amount of N17.3 trillion.
“Hence, this has increased the risk that the actual deficit for the year would exceed the N9.2 trillion budgeted for by at least 72.8% should the total expenditure plan of N35.1 trillion be fully accommodated,” Afrinvest Limited stated.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) was steady at 1.54 mb/d in October, the same level of production seen in September.
The report revealed that the Forcados terminal experienced a significant decline in output, down by -30.1% in Oct due to a shutdown for repairs following a sabotage incident.
This offset production increases from terminals such as Qua Iboe (+45.1% m/m), Tulja-Okwuibome (+9.0% m/m), Escravos (+5.2% m/m), and Bonga (+5.0% m/m).
Overall, crude oil production averaged 1.52 million barrels per day (mb/d) in 9M-2024 versus 1.45 mb/d the equivalent period in 2023 Full year oil production was 1.47 mb/d on average.
“While progress is still underway as regards the fight against crude oil theft and pipeline vandalism, we believe that challenges plaguing the sector, including the suboptimal investment underpinned by increasing IOC divestment and infrastructure decay, still pose downside risks to crude oil production in the near term,” Cordros Capital Limited said in a note.
Thus, analysts maintain the average crude oil production estimate (including condensate) at 1.52 mb/d in 2024, which is lower to 1.78 mb/d in 2024 budget preparation. #Nigeria’s Revenues Miss to Raise Budget Deficit by 73% – Analysts Interbank Rates Slow as Remita, FAAC Credits Boost Liquidity
