October 24, 2018 / 09:13 AM / FBNQuest Research
The budget and planning ministry last week held a public consultation with civil society to share its 2019-2021 Medium term expenditure framework & Fiscal strategy paper.
We are only four months into the 2018 budget year and four months ahead of elections that could bring a new administration but the draft documents still offer some useful pointers. We have viewed the documents against the backdrop of the Budget Implementation Report for Q4 2017 from the Budget Office of the Federation.
Compared with the Economic Recovery and Growth Plan 2017-20, the FGN’s forecasts have been scaled down for average oil production (to 2.30mbpd) and growth (to 3.0%) while the framework sees lower inflation (10.0%) and a higher average oil price (US$60/b). The new documents have a stable “official” exchange rate of N305 through to 2021.
The preamble notes one reason for the lower growth, acknowledging the impact of the clashes between farmers and herdsmen, and highlighting the sharp fall in agricultural growth to 1.2% y/y in Q2 2018.
It also notes the risk to inflows from FPIs from the forthcoming elections. What matters is not what little impact recent polls have had on the macroeconomy, as we have recently sought to demonstrate, but that investors feel this time could be different.
Total FGN revenue for 2019 including the nine leading government-owned enterprises (GOEs) other than the NNPC is projected at an ambitious N7.92trn. Oil revenue of N3.69trn could be attainable if the average price settles well above the assumption. (The commentary notes that production including condensates was running at 2.15mbpd last month.)
On the non-oil side, the FGN’s share of companies’ income tax and customs levies is set at N800bn and N303bn in 2019, compared with outturns of N543bn and N261bn in 2017. Sizeable contributions to total revenue are expected from GOEs (N955bn), proceeds of unspecified oil assets restructuring (N710bn) and FGN independent revenue (N625bn).
Total FGN expenditure (again including the GOEs) is set at N10.16trn for 2019. The special interventions (N350bn recurrent and N150bn capital) are maintained, while the annual outlays for the presidential amnesty programme are projected at N65bn through to 2021. A substantial rise for pensions, gratuities and retirees in 2019 suggests plan to clear arrears.
The forecast deficits in the framework paper naturally respect the 3% of GDP threshold set in the Fiscal Responsibility Act 2007.