Wednesday, August 31, 2016 9:43pm / FBNQuest Research
The FGN’s fiscal outturn for Q2 2016 does not make for pleasant reading. We stress that the data are provisional and are liable to extensive revision in the CBN’s next quarterly economic review.
That said, the reported deficit of N1.09trn is the highest in at least ten years while the FGN’s total expenditure surged by 44% from Q1 to N1.77trn. Retained revenue for the quarter of N678bn represented a 34% q/q improvement yet it is hard to avoid the conclusion that the heady targets for the FGN in the 2016 budget will prove out of reach.
Debt service amounted to 27% of total spending in Q2. This burden was almost entirely due on the FGN’s domestic obligations, and explains the DMO’s determination to boost the external component in total federal debt.
The provisional data point to capital expenditure of N571bn in H1, compared with the full-year target of N1.60trn. We struggle to reconcile the figure with the statement of Udo Udoma, the federal budget and national planning minister, just last week that a total of N400bn had been released year-to-date for capital projects.
The data also indicate a deficit in H1 2016 of N1.82trn, which amounts to a substantial overshoot in the context of the full-year projection of N2.20trn.
The DMO has raised N760bn (gross) from auctions of FGN bonds in January to August exclusive of non-competitive bids. The FGN has not yet borrowed externally this year and may still secure some substantial recoveries. However, we should expect another challenging DMO issuance calendar for Q4.
While the Q2 numbers are subject to revision, the likelihood is that the FGN will have to scale back its capital spending target for the year substantially if its deficit is not to spiral out of control.