Nigeria’s fiscal deficit drops 29% to N2.82trn

Nigeria’s budget deficit has reduced by 29 percent from 2023 as the federal government eyes banks’ realised foreign exchange gains.

BusinessDay analysis of the data from the latest quarterly statistical bulletin of the Central Bank of Nigeria (CBN) shows that the country’s fiscal deficit fell 29 percent to N2.83 trillion in the first quarter of 2024 from N3.96 trillion in the same period of 2023.

Nigeria’s fiscal deficit in the first quarter of 2021 stood at N1.98 trillion.

A fiscal deficit is a shortfall in a government’s revenue compared with its expenditure. Experts say a reduced budget deficit may help the government to spend more on capital projects and human capital which are critical in spurring economic growth, delivering jobs and reducing poverty.

A breakdown of CBN’s quarterly statistical bulletin reveals that the country’s revenue in the first quarter of 2024 amounted to N1.76 trillion while its expenditure stood at N1.53 trillion during the period.

Revenue increased to N1.76 trillion in the first quarter of 2024 from N1.32 trillion in the same period of 2024.

A report by FSDH Research noted that higher inflows will improve fiscal deficit and debt sustainability ratio in the short term.

On July 17 2024, the Nigerian presidency announced a one-off 50 percent windfall tax on Nigerian banks’ foreign-currency revaluation profits in 2023 to raise funding for infrastructure and other critical spending as part of a N6.2 trillion ($4 billion) addition to the 2024 budget. This has been increased by 70 percent by the Senate.

Emeson Kelvin, a Lagos-based finance analyst said, “The purpose of the windfall tax on banks is to support the budget.

“Given this, there will be an extra source of income to the government for the given period and in effect reduce the budget deficit,” he said.

He, however, noted that bank FX gains in the 2023 full year should not be seen as an extra source of income for the federal government of Nigeria.

“We should expect an increment in government expenditure because I do not think it will be reduced except government address leakages,” he said.

Tobi Ehinmosan, macroeconomic and fixed income analyst at FBNQuest Merchant Bank, said it is not ascertained the amount the Federal Government will be getting from the bank as regards their realised foreign exchange gains.

“The potential revenue from banks will not meet the country’s rising expenditure plans,” he said.

“If the deficit further reduces, we would expect this to come from higher revenue gains from improved crude oil production, FX gains from the currency depreciation and higher revenue collections from non-oil sources,” Ehinmosan stated.

FBN Quest analysts, in a daily morning note entitled, ‘A lower fiscal deficit in Q1 ’24’, which was released on August 1, said: “Improved crude oil production, efficiency in tax revenue mobilisation, and the 70 percent windfall tax on banks’ forex revaluation gains could potentially boost the Federal Government of Nigeria’s revenue purse.

“We anticipate an expansion of FGN’s expenditure profile due to the recent increase in workers’ wages and elevated debt servicing costs resulting from the government’s reliance on borrowings to finance its budget deficit because of revenue underperformance.

“As such, we expect the FGN’s fiscal operations to remain in deficit in subsequent quarters,” FBN Quest analysts stated.

Since President Bola Tinubu announced petrol subsidy removal during his inauguration last year in May, pump petrol prices have more than tripled to over N600, while the value of the naira has plunged following the floating of the currency.

The Central Bank of Nigeria (CBN) merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

An Accelerated Stabilisation and Advancement Plan draft report presented by Wale Edun, minister of finance and coordinating minister of the economy, revealed that Nigeria will spend up to N5.4 trillion on petrol subsidy in 2024.

“At current rates, expenditure on fuel subsidy is projected to reach N5.4 trillion by the end of 2024. This compares unfavorably with N3.6 trillion in 2023 and N2.0 trillion in 2022,” the report said.

However, Bayo Onanuga, the president’s special adviser on information and strategy, dismissed the viral document, describing it as unofficial and merely a policy proposal still under review at the highest levels.