The Central Bank of Nigeria’s (CBN) monthly report for January 21 shows that the government’s revenue collection continues to be affected by the effects of the Coronavirus pandemic.
The Senate passed a supplementary budget of N982 billion (982,729,695,343) for the 2021 fiscal year. This was against the N895 billion proposed by President Muhammadu Buhari – indicating an increase of about N87 billion. The approval was sequel to the consideration of the report of the Senate committee on appropriations which was presented by the chairman, Barau Jibrin.
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According to CBN’s report, total federally collected revenue fell 13 percent year-on-year (y/y) to N807.5bn and was 5 percent below the budget benchmark. Of the gross amount, the Federal Government’s retained revenue amounting to N285.3bn, 41 percent below its programmed benchmark. For 2021, the Federal Government has an ambitious revenue target of N 7.99 trillion and a huge projected deficit of N5.6trillion.
Recall that the president had, on June 22, transmitted the budget of N895 billion requesting the approval of the Senate. The request was made about two weeks after the Federal Executive Council approved the appropriation.
In his presentation, Jibrin said the committee engaged with the minister of finance, Zainab Ahmed and other stakeholders on the request.
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While N123.3 billion was fixed for recurrent (non-debt) expenditure, N895 billion was earmarked for contribution to the Development Fund for capital expenditure for the year ending December 31, 2021. Another N45 billion was approved for foreign aids/loans. The budget was passed in the committee of supply.
The Federal Government stated that “the budget is specifically meant to enhance the capacity of the military and para-military agencies to tackle the various security challenges in the country”.
After the passage, the Senate president, Ahmad Lawan, said the relevant committees of the upper legislative chamber must carry out oversight to ensure that the funds are properly utilised.
Similar to prior years, the government’s non-oil (including independent and other) revenue target is still daunting at N6.0 trillion. A pattern has emerged over several years of the government missing the revenue target and trimming capital releases. For instance, even after the revisions to the 2020 budget, total realised non-oil (and other) revenue of N2.2 trillion for 2020 was 46 percent lower than the anticipated amount.
Non-oil revenue for January ’21 fell short of the budget by almost 20 percent due to collection deficits in corporate income tax, VAT, independent revenue, and others. However, it increased 18 percent y/y to N441 billion, thanks to gains in Customs and Excise, and VAT charges, the latter aided by a 250bp rate hike to 7.5 percent.
On the other hand, oil revenue of N366.5 billion surpassed the provisional budget benchmark by 24 percent due to crude oil prices averaging at $55 per barrel, compared to the government’s budget assumption of $40. In comparison to the 1.86 million barrels per day (mbpd) envisaged in the budget, crude oil output has averaged 1.5 million barrels per day (mbpd) since January.
In 2020, non-oil revenue amounted to a paltry 3.1 percent of GDP, while total revenues to GDP was around 6.0 percent. Given the revenue constraints and the huge fiscal deficit, we expect the fiscal deficit-to-GDP ratio to be higher than the 3 percent stated in the Fiscal Responsibility Act of 2007.
Last week, the minister of finance, Zainab Ahmed revealed that the Federal Executive Council (FEC) had approved the 2022 – 2024 Medium Term Expenditure Framework and the Fiscal Strategy Paper (MTEF/FSP). The Minister stated that the budget deficit will rise to N5.62 trillion, and would be funded by new foreign and domestic borrowings.
She also stated that the Framework Strategy paper was a roadmap for the FG’s socio-economic and developmental objectives and priorities, including policies to be implemented for the reporting period of 2022 to 2024.
The ministry of finance presented the report to the FEC projecting revenue of N6.54 trillion and N2.62 trillion to accrue to the Federation Account and Value Added Tax (VAT) respectively, while 2023’s revenue is forecasted at N9.15 trillion.
“The revenue that we expect is N6.54 trillion and N2.62 trillion to accrue to the Federation account on VAT respectively. And then there will be a net oil and gas revenue available for the Federation account for distribution will be N6.15 trillion in 2022. This revenue is projected to increase in 2023 to 9.15 trillion. The total expenditure that we are expecting we have projected and approved by council is an aggregate expenditure of N13.98 trillion,” she said.
She added that part of the expenditures includes N1.1 trillion of government-owned enterprises expenditure as well as grants and donor-funded projects in the sum of N62.24 billion.
Ahmed also stated that Nigeria’s budget deficit that is projected for 2022 is N5.62 trillion, up from 5.60 trillion in 2021, as the amount represents 3.05 percent of the estimated GDP, which is slightly above the 3 percent threshold that is specified in the Fiscal Responsibility Act (FRA).
“The deficit is going to be financed by new foreign borrowing and domestic borrowing. Both domestic and foreign in the sum of N4.89 trillion on privatisation proceeds of N90.73 billion and drawdowns from existing project tied loans of N635 billion,” she added.
