A More Grounded Budget For 2020


Thursday, February 06, 2020   /09:20 AM  / By FBNQuest Research / Header Image Credit: Young and Thrifty


The best feature of the FGN's 2020 budget is its rapid passage, which shows that the executive and the legislature are capable of working together. The second best feature is the measure of realism underpinning the revenue assumptions. Underlying collection has improved, albeit from a low base. It reached N4.25trn in January-September (9M) 2019, compared with the year-earlier N2.80trn and behind the pro rata figure of N5.25trn. An unbudgeted N1.31trn representing the balance in special accounts compensated for underwhelming oil revenue.


The 2020 budget sets total FGN revenue at N7.60trn. Allowing for the rate of y/y growth achieved in 9M 2019, not to mention inflation, we view the projection as plausible. If we are being polite, which invariably we are, some earlier budget projections were fanciful. l


The breakdown of the outturn for the year might be very different to the projections, however. We would be surprised for example, given the recent track record and the continuing impasse over the industry bill, if signature bonuses, renewals and early renewals yielded N939bn this year. In contrast, the target of N850bn for FGN independent revenue is credible, given the outturn in 9M 2019. 


Total non-oil revenue is set at N1.81trn for the year, an increase of 36% on 9M 2019 (annualized). Efficiency gains, along with the improvement in coverage due to computerization and other reforms, can produce a strong growth in collection.


The rise in the standard rate of VAT that takes effect this month could raise up to N1trn. However, state governments receive 85% of the funds collected in the VAT pool.


The projection of N2.64trn for the FGN's share of federally collected oil revenue in 2020 may prove challenging. The budget assumptions are an average oil price of US$57/b and average production of 2.18mbpd.


The price assumption in our view should leave some headroom although in the ideal world the National Assembly would not have insisted on an increase and would have heeded the warning from the monetary policy committee about the merit in building a larger buffer against external and other shocks.


The output assumption will probably prove a little ambitious when we consider the pressure from global demand and the need for OPEC+ to compensate with quota restraint.


Which leaves N305 for the assumed exchange rate. A level of N307 would have been more appropriate. Our long-held view, repeated ad nauseam, is that the monetary authorities will be able to hold the line this year.


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