Sub-par Capital Spending By The FGN


Monday, November 26, 2018 09:09 AM / FBNQuest Research


The striking conclusion to draw from our chart is that the FGN’s retained revenue has not once covered its recurrent expenditure in the past two years. In Q3 2018 it was 6% higher than the previous quarter but fell 50% short of the proportionate budget target of N1.89trn. This underperformance can be traced directly to the shortfall in gross federation account revenue that is distributed between the three tiers of government. That shortfall in Q3 amounted to N790bn, with gross oil and non-oil inflows 27% and 19% below budget respectively.                                                                                                                  

The monthly statutory allocations from the federation account provided a 87% share of retained revenue in Q3. The contribution from the FGN’s independent revenue fluctuates sharply between quarters but was a disappointing 5% of the total. 

Debt service payments in Q3 comprised 49% of total expenditure. Their share of retained revenue, which is the more frequently quoted ratio in fiscal analysis, was 54%. This burden, as we have often noted, has driven the Debt Management Office’s strategy of externalization. 

Capital expenditure, which includes statutory transfers in our chart, has been running well short of the FGN’s headline target of 30% of total expenditure. This data from the CBN’s quarterly reports suggest that announced capital releases have not been disbursed. Statistics from the budget office, which tend to be released with a lag, may tell a different story. 


FGN finances (N bn)

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Sources: CBN; FBNQuest Capital Research


The CBN data imply a much reduced deficit of +/- N100bn in both Q2 and Q3, the lowest for five years. These deficits look very good in the context of the 2018 budget target for the year of N1.95trn, and conflict with market and other anecdotal talk of public finances under acute strain. Substantial data revisions to the series are common, however.


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