Another Ambitious Revenue Target for FY '22

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Tuesday, October 12, 2021 / 11:19 AM / by FBNQuest Research / Header Image Credit: Vanguard


The FY '22 budget which was presented by the President to a joint session of the national assembly last week Thursday contained a total expenditure of NGN16.4trn, c.12% higher than the NGN14.6trn budget (inc. supplementary) for FY '21. As expected, the budget continued the administration's expansionary fiscal policy. We note that, as in previous years, the FGN has set an ambitious revenue target of NGN10.1trn, or 24% above the FY '21 target, implying a fiscal deficit of -NGN6.3trn, or 3.7% of forecast GDP, down from the 4.5% projected for FY '21.

 

The FG is bullish on its oil revenue forecast, estimated at 33% of total. The USD57/barrel oil price benchmark looks acceptable given current pricing. However, we believe the oil production target of 1.88 million barrels per day (mbpd) is ambitious, given the current (Jan-Aug) '21 run-rate of c.1.57 mbpd provided in a town hall presentation by the minister of finance.

 

Also, we find the FG's projection that it will generate c. NGN4.5trn from other sources including, independent revenue, signature bonuses, special levies, and (net) revenue from government-owned enterprises optimistic, given a historical record of underperformance. Drawing from the finance minister's presentation, revenue from these sources were tracking -34% below their pro-rata run-rate for the Jan-Aug '21 period.

 

Of the total expenditure, non-debt recurrent costs are expected to take up c.NGN6.8trn (or 42% of total), representing an increase of 21% y/y which we link to a rise in the government's wage bill due to salary reviews from negotiations with various employee groups.

 

As a result of the administration's emphasis on capital spending, the allocation to capital expenditure in the FY '22 budget has been increased slightly to NGN5.4trn from NGN5.2trn in the FY '21 budget. However, due to the budget's larger size, the overall capital allocation is down to 33% of total expenditure, down from c.36% in FY '21.

 

The forecast debt service cost (inc. sinking fund) represents 24% of the overall budget, and implies a debt-service to revenue ratio of c.39%, down from 41% in the FY '21 budget. We see from the minister's presentation that the actual debt-service (inc. ways and means) to revenue is presently running at c.73%.

 

The projected fiscal deficit is expected to be funded by new borrowings of NGN5.01trn, split evenly between domestic and foreign sources, c.NGN1.2trn from multilateral/bilateral project tied loans, and privatisation proceeds of NGN91bn. Given the aggressive revenue assumptions, we expect the actual fiscal deficit to be larger than anticipated.

 

Fiscal operations of the FGN (NGN 'bn)               

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Sources: Federal ministry of finance; FBNQuest Capital Research; *forecast budgets for FY '21 and FY '22

 

Download PDFs Here - Budget 2022: Budget of Economic Growth and Sustainability

2022 FGN Budget proposal - Public Presentation

2022 Appropriation Bill

 

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