FG income threatened as petrodollars hit 4-month low
For Nigeria, it is a new year with old problems.
Nigeria earned less cash than planned in the month of January as oil income fell to its lowest level in four months, an early sign that government revenues are set for a seventh straight year of underperformance.
According to the latest monthly economic report published by the Central Bank of Nigeria (CBN), gross federally collected revenue came to N945 billion in January, 7.8 percent less than the N1.024 trillion budgeted for the period. The gross federally collected revenue is the money earned by the country before it is shared among the three tiers of government.
This is different from the Federal Government’s retained revenue, which was N406 billion in the same period, 39 percent below the monthly target of N666 billion in the budget.
Oil income was the biggest factor responsible for the revenue underperformance. Cash from oil sources came to a paltry N330 billion, the lowest since September 2021, when N307.43 billion was earned. That meant oil income was 35 percent below the monthly target of N506 billion in the budget.
The difference between the government’s actual revenues and the budget would have been much wider without a better-than-projected performance in non-oil income.
Non-oil income, which is made up of mainly corporate taxes, Value Added Tax (VAT) as well as customs and excise duties, totalled N615 billion in January, 19 percent above the budgeted monthly target of N519 billion and a 47 percent increase compared to January 2021.
“The major underperformance in revenues was from the oil sector, whose performance offset strong revenues delivered by the non-oil sector,” said Tunde Abidoye, an analyst at Lagos-based FBN Quest.
“This is unsurprising, given recent reports of low crude oil production due to oil theft and pipeline vandalism,” Abidoye said in a note to clients.
A breakdown of the components of oil revenue showed that no revenue accrued from crude oil and gas exports in January, the second straight month the government has earned nothing from such a major income source.
No money was recorded for oil and gas exports because the Nigerian National Petroleum Company has not remitted funds to the joint pool of the federation account in recent months, due to rising petrol subsidy claims, on the back of elevated crude oil prices as well as lower oil production.
Revenue from petroleum profit tax and royalties, which formed the bulk of oil revenue, declined by 31 percent to N247 billion compared with N360 billion the previous month and was also below the monthly target of N277 billion.
While oil income took a hit, all the major segments within the non-oil sector expanded by double-digits, relative to the prior year and came in ahead of their pro-rata monthly targets.
Company income tax (CIT), customs and excise duties, and VAT were all up by 44 percent, 47 percent, and 17 percent respectively, when compared to the same period last year, with VAT receipts contributing the most cash.
VAT receipts totalled N201 billion, while CIT and customs and excise duties amounted to N152 billion and N132 billion respectively.
“New policies that have increased the scope of the government’s taxable pool like the 50 percent increase in VAT are contributing to improved non-oil revenues while higher corporate profits have also helped in terms of CIT,” said Taiwo Oyedele, a partner and head of tax and regulatory services at PWC Nigeria.
The weakness in oil revenues and strength in non-oil revenues mirrors the National Bureau of Statistics’ most recent national accounts, which showed the non-oil economy grew by 6.1 percent while the oil sector contracted by 26 percent in the first quarter of 2022.
Analysts say the overall weak revenue performance in the first month of the year is a sign of what is to come by the end of the year when the government may have missed its annual revenue target for the seventh straight year.
If the budgeted revenue is not achieved, then it means the budget deficit will be higher, considering government expenditure is not as flexible.