The Backdrop for the Revised Budget


Wednesday, May 06, 2020 / 9:19 AM / by FBNQuest Research / Header Image Credit: THISDAYLIVE


The FGN is both reworking its 2020 budget in conjunction with the National Assembly and, the newswires reported yesterday, talking to external lenders about a possible debt rescheduling. So we comment today about both processes against the background of its actual spending in January-September 2019. At the outset of the reworking the FGN let it be known that it would assume an average crude price of US$30/b rather than the original US$57/b. It is now working with an average of US$20/b. We would also expect lower average production following OPEC+'s agreement on output restraint.

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Since the FGN is most unlikely to cut salaries, having implemented a rise in the national minimum wage, and given the largely domestic structure of debt service (see below), the axe will surely fall on its capital spending.


We have often noted that improvements in non-oil revenue generation are incremental for reasons of coverage as well as compliance, so it appears we are looking at an actual deficit well in excess of the N1.85trn projection in the approved budget.  


Our chart shows a breakdown of spending so as to highlight the relative weightings. For the burden of debt service, however, the critical measure is relative to total FGN inflows. This ratio did improve from 64.9% in 9M 2018 to 45.2% in 9M 2019, and the discarded budget for this year saw a further improvement to 32.3%. Yet oil revenue of N2.64trn this year is now implausible and we should therefore expect the ratio to deteriorate.

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Structure of FGN expenditure, 9M 2019 (percentage shares)


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Sources: Office of the minister of finance, budget and national planning: FBNQuest Capital Research


As for the talks on rescheduling, it is worth noting that debt service payments in 9M 2019 were 84% on the FGN's domestic obligations including interest on ways and means advances (N1.61trn vs N320bn). Drilling down further, external payments are roughly 60% commercial and 40% concessional.


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