In what was a surprise turn of events, it appears the economic slowdown experienced in Nigeria in the first quarter of the year was worse on non-oil sector than it was on oil sector which most analysts had written off.
In the first quarter of 2020, Federal retained revenue as project in the initial 2020 budget was estimated to be N1.96 trillion in the first 3 months of the year, but what was actually earned was only N950.5 billion, representing a revenue shortfall of around N1.015 trillion.
Most analysts expected that revenue shortfall in government treasury will largely be driven by weakness in crude oil prices which fell sharply in Q1 from $66 at the start of the year to $22.75 at the end of Q1 2020. However, data obtained from Nigeria’s 2020 revised budget report showed that oil revenue declined by only 30% compared to non-oil revenue which fell 40 percent below its budgeted estimate for Q1.
Although in terms of value lost, oil revenue declined by around N195.3 billion compared to non-oil revenue fall of around N181.87 billion. However, this only reflects the fact that Nigeria continues to be predominantly funded by oil revenue and the high income from oil is what will cause the actual amount to exceed the drop in non-oil revenue even though based on a percentage decline the non-oil revenue had a worse performance.
The repercussion of lower oil income earned is already impacting all tiers of government as they saw their allocations decline significantly during the first three months of the year.
The Federation Account Allocation Committee (FAAC) disbursement to the three tiers of government dropped from N716.3 billion in January to N581.57 billion in March, representing a decline of about 18 percent.
Analysts now forecast that FAAC allocations may drop further to N370.89 billion in the second half of the year if crude oil price averages $25/b this year. The forecast drop represents a decline of about 48 percent in FAAC disbursement from its January figure, which is in line with the 52 percent drop in revenue below budget in Q1.
This really should not come as a shock as the last time oil price averaged $30 in the market was in January 2016. The following month, only about N370 billion was shared to all tiers of the government from the total earnings accrued in January 2016.
The federal government has now revised its oil price benchmark from $57 to $25 for the rest of the year. If oil prices average $25, then FAAC disbursements of less than N400 billion could be the new reality for the government. As at market close on Friday, bonny light crude oil price had risen to $38.27 as oil price has rallied strongly since the gradual reopening of the global economy.
