A Slight Improvement in the Fiscal Deficit


Monday, November 15, 2021 / 10:46 AM /  By FBNQuest Research / Header Image Credit: FBNQuest 

The CBN's most recent Quarterly Statistical Bulletin (QSB) for Q2 '21 shows that the fiscal operations of the Federal Government of Nigeria (FGN) resulted in a fiscal deficit of NGN1.9trn, an improvement over the NGN2.5trn recorded in Q1. Relative to GDP, the deficit narrowed to 4.7% of GDP, compared with 6.2% in Q1 '21. Although the deficit improved in Q2, it is still slightly higher than the 4.5% target set in the FY '21 budget. The data is sourced by the CBN from the Office of the Accountant-General of the Federation. It is provisional and could be revised in the future. Also, there are usually variances between the CBN's data series and data from the Budget Office of the Federation.


The q/q improvement can be explained by a combination of the higher revenue outturn and lower expenditure.  In Q2, the FGN's retained revenue was up 23% q/q to NGN1.1trn and was the highest revenue outturn since Q4 '19.


We believe the stronger revenue performance reflects better performance of the non-oil sector (which grew by 6.7% in Q2), particularly higher collections from companies income tax (CIT), VAT, and the FGN's independent revenue. According to NBS data, total CIT collections were up by 20% q/q to c. NGN472bn in Q2 '21.

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Although revenues fell short of the pro-rata budget benchmark by 44%, it must be viewed within the context of the FGN's aggressive revenue target which implies a pro-rata quarterly run-rate of NGN2.0trn. The actual revenue outturn has been less than NGN1.5trn in any given quarter for as far back as we can track.


Total expenditure in Q2 was NGN3.0trn, down -12% q/q and -17% below the NGN3.6trn quarterly budget benchmark. Drawing from the CBN's latest monthly economic report for April, we get a sense that the reduction in total expenditures may be connected with delays in the budgeted releases to government ministries and agencies.


The primary drivers of the q/q reductions in the FGN's expenditures were lower capital expenditures (capex) and a reduction in debt service cost q/q. The FGN's capex slowed considerably in Q2 by -21% q/q to NGN848bn. On a half-year basis, total capex of NGN1.9trn is tracking about -23% behind the budget benchmark. 


Debt service costs declined by -20% q/q to NGN900bn. We attribute the decline to the lower concentration of bond issuances (especially domestic bonds) in Q2 and Q4. Following the weaker revenue outturn relative to budget, we believe that FY '21 capital spending will underperform the budget benchmark, as it has in previous years.


Fiscal operations of the FGN (NGN 'bn)               

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Sources: CBN; FBNQuest Capital Research

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