Back to Work on the 2020 Budget

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Wednesday, March 11, 2020 / 09:50 AM / FBNQuest Research / Header Image Credit: Vanguard News

                                                                                 

Before and again following the rout in global markets on Monday, the federal finance ministry indicated that it would revisit the approved 2020 budget for the FGN. Unfortunately,  due to the success of its rapid passage, a reworking is now essential with the crash in the crude price. The assumption of an average price of US$57/b now appears overoptimistic even if the world could somehow overcome the impact of the coronavirus by mid-year. At the same time, the ministry may care to tweak the assumption of average crude production of 2.18mbpd for the year.

                                                                                                              

The projection of oil revenue of N2.64trn therefore looks too high. The FGN can push up revenue forecasts from other sources to reach the total of N7.60trn (vs N4.77trn achieved in 2019) or, reluctantly, trim its spending plans. The second course of action would hit capital items above all since no government anywhere will delay salary and pension payments lightly.

 

We still think that there is some headroom in the budget projection of N2.45trn for total debt service excluding sinking fund contributions. Rates have moved up sharply since the rout but we should remember that the budget was presented to the National Assembly in early December and that the budget office would have been working on it several weeks beforehand.

 

The other projections for revenue collection by the FGN in 2020 are mixed. While we are not wholly convinced by the N1.31trn inflow from special accounts, we are comfortable with the projection of N850bn in FGN independent revenue, given the outturn in 9M 2019 (Good Morning Nigeria, 06 February 2020).

 

FGN finances (N bn)

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Sources: CBN; FBNQuest Capital Research

 

We would not expect a reworked/supplementary budget for 2020 to make marked changes to the assumed exchange rate of N305 per US dollar (although N307 would reflect the current preferential rate).


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