Monday,
October 12, 2020 / 10:35 AM / By CardinalStone Research / Header Image Credit: THISDAYLIVE

2021 Budget of Economic Recovery and Resilience
President
Muhammadu Buhari presented the 2021 proposed budget, titled the Budget of
Economic Recovery and Resilience, at the Joint Session of the National Assembly
in Abuja on 8th October 2020. The major assumptions of the 2021 proposed
budget include:
- Benchmark oil price of $40 per barrel
- Daily
oil production estimate of 1.86 million barrels
- Exchange rate of N379/$
- GDP
growth projection of 3.0% and an inflation rate of 11.95%
Expenditure
The
federal government is proposing a 21.0% increase in targeted aggregate
expenditure to N13.08 trillion in 2021. The increment mostly reflects increased
allocations towards personnel costs, debt service and capital expenditure.

Revenues
- The
government expects to raise total revenue of N7.89 trillion in 2021. This
revenue projection comprises expected inflows from grants & aids (N354.85
billion) and funds from several government-owned enterprises.
- According to the document, the oil price and production assumptions are likely
to result in oil revenue of 2.01 trillion (25.5% of total). Elsewhere, the
government is also aiming to raise N1.49 trillion (18.9% of total) in non-oil
revenue in the coming year. The remainder may likely be derived from
independent revenue sources, special account transfers and signature bonuses
and renewals.

Budget Deficit
To the
government, revenue shortfall should approximate N5.2 trillion (3.46% of GDP)
in 2021. The FGN plans to finance the deficit with flows from new borrowings
(N4.28 trillion), privatisation proceeds (N205.15 billion), and drawdowns from
multilateral and bilateral loans secured for specific projects and programmes
(N709.69 billion).

Initial Assessment
- In
our view, given its ever-widening budget deficit and concurrent FX needs,
Nigeria may be tempted to revisit the Eurobond market next year after having
shelved plans to raise $3 billion in 2020 following the COVID-19 outbreak.
However, a return to the international debt market may, ultimately, depend on
external financing conditions. Even though weaker oil prices and domestic FX
liquidity issues are concerning, the Fed's long-term dovish posture and
relative stability in the Eurobond market suggest that a few providers of
long-term capital may still be up for some risks. That said, investors are
likely to demand a premium to pre-pandemic levels of c.7.5%, on duration, for a
potential Eurobond issuance
- The
oil price and production assumptions appear reasonably conservative and in line
with emerging realities. However, we believe the exchange rate and inflation
targets are likely to be unattainable. On the FX front, growing external sector
pressures (as travel and trade activities normalise) amid protracted slowdown
in the oil economy could cascade to another naira repricing by 2021, while the
inflation rate could be nudged higher by increased electricity tariff and
volatile fuel prices.

Related News
- Nigeria's
2021 Budget of Economic Recovery and Resilience
- Highlights
of FGN Budget Proposals for 2021 Fiscal Year
- Buhari
Presents Nigeria's N13 trillion 2021 Budget to Lawmakers
- FEC
Approves 2021 Budget, to be Presented to NASS Next Week
- Update on
2020 Revised Budget, MTEF and Fiscal Strategy for 2021 - 2023
- Buhari
Signs N10.8trn Revised 2020 Budget
- Temporary
Breach of the FRA Projected
- BPP
Publishes Details of N1.4trillion COVID-19 Emergency Procurement details
for 3 MDAs
- Fiscal
Stimulus Measures in Response to The COVID-19 Pandemic and Oil Price
Fiscal Shock
- Far from
Great Fiscal Expectations
- A Budget
Adjusted for the New Normal