The Federal Government of Nigeria’s fiscal deficit ran at a 12-month high in the month of February, according to data provided by the Central Bank, as actual revenues flunked budget targets and officials overshot spending.
At N404.9 billion in February, the deficit is almost four times the monthly provisional budget estimate of N185 billion, with the government amassing debt at a frantic pace to shore up ailing revenues.
Retained revenue came to 58 percent of the budget estimate, at N194 billion, as opposed to N337 billion, while total expenditure was N599 billion, 14.7 percent more than the budgeted N522 billion for the said month.
The biggest shortfall came from non-oil gross revenues, which flunked estimates by nearly 50 percent, the CBN monthly report showed.
Pressed to spend its way out of an economic slump, the first such slump in over two decades, Nigerian lawmakers approved a 2017 spending plan of N7.4 trillion in May. The budget has a N2.36 trillion deficit to be plugged through borrowing.
The government has now missed revenue targets for the second month running, after January actual revenues turned out 50 percent less than planned.
To implement the budget, disappointing revenues will cause government to borrow more than planned and some capital expenditure may suffer, according to Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital. The International Monetary Fund (IMF) estimates that the 2017 budget deficit will hit 3.7 percent of GDP from 2.8 percent last year.
“In the first quarter, government sold bonds at record pace to make up for the shortfall,” Yinkere observed.
The Debt Management Office (DMO) raised N750 billion in bonds in the last five months, according to data compiled by BusinessDay. At its last auction of FGN bonds, however, it struggled to raise the total amount it wanted, as investors looked away in search for higher yields.
“More attractive returns are available for almost all NTBs,” said Gregory Kronsten, head of fixed income research at FBN Quest.
“Additionally, the step-up in fx interventions by the CBN since March, has reduced banks’ free funds to invest in debt markets,” Kronsten said by email.
The DMO sought to raise N140 billion but managed just N105 billion. For the three-year benchmark (Jul ‘21s) it collected N10 billion, rather than its target of N40 billion.
“Such is the DMO’s determination to contain the FGN’s borrowing costs,” Kronsten said. “Its successful front-loading of issuance in the first quarter has given it some welcome room for manoeuvre.”
Various analysts, and more recently, the World Bank, have expressed concerns over Nigeria’s debt profile, citing the inadequacy of current revenues to sustain interest rate payments. At the recent IMF/World Bank Spring Meetings in Washington, Catherine Pattillo, Assistant Director and Head of Fiscal Policy and Surveillance Division of the IMF, pointed out that Nigeria’s interest payment to tax revenue has more than doubled to 66 percent.
Nigeria’s tax to GDP ratio is less than six percent, one of the lowest globally, but it has not deterred government from raking up debt and shelling out huge sums in loan servicing.
While continental neighbours from Ghana to Angola and Zambia, have swallowed their pride to seek near zero interest loans from the IMF, Nigeria is holding out as 74-year old President Buhari retains a dislike for the fund.
Two-time former finance minister, Kalu Idika Kalu, said in an interview on CNBC Africa last month, that Nigeria was shying away from cheap funds, due to ignorance.
“It looks good on paper,” Yinkere of Vetiva Capital said, regarding the IMF funds. “But the government is not ready to turn to the IMF because it cannot adopt its conditionality,” he said, pointing specifically to the country’s reluctance to embrace market forces in its foreign exchange market and the downstream petroleum sector.
LOLADE AKINMURELE
