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Some Welcome Surprises on Revenues

Proshare

Tuesday, December 12, 2017 / 9:59AM /FBNQuest Research


Although the National Assembly has started to scrutinize the 2018 budget proposals submitted by the president on 07 November, we are in the curious position of commenting on a document that is not in the public domain. 

The assembly has called for an increase in the oil price threshold from US$45/b to US$47/b. The FGN can probably live with this move and its implications for total spending, given the recovery in the oil price in recent weeks and the new-found production discipline of OPEC members.

The first test of any budget is whether it is plausible. The proposals see total FGN retained revenues at N6.61trn, compared with N5.08trn in 2017. 

Data from the Office of the Accountant General of the Federation (OAGF) show actual revenue in H1 2017 at N2.43trn and therefore only just short of the pro rata projection of N2.54trn for the half year. This comes as a surprise when we consider anecdotal evidence and the newsflow. Indeed the data have receipts from companies’ income tax in H1 at N157bn (vs N404bn pro rata) and total non-oil revenues at N353bn (vs N690bn). 

However, this underperformance was balanced by a contribution in H1 of N997bn (vs just N354bn) from other revenues. This consisted largely of a transfer to the Consolidated Revenue Fund of N526bn, exchange-rate differences and a special distribution. 

While we might ask whether these gains are repeatable, we have heard from a semi-official source that FGN retained revenues reached N3.3trn in 9M 2017. The one-offs may have been less prominent in the third quarter but the total would still represent 87% of the projection for the nine months. 

The target of a further 30% increase in total retained revenues in 2018 is aggressive. Since there are no plans to increase tax rates, the attainment of the target hinges upon some FGN initiatives: these include the tax amnesty, data matching between government departments and recoveries, which yielded zero in H1 2017 according to the OAGF (vs the pro rata projection of N283bn). 

On the expenditure side, we have singled out total debt service. The 2017 budget projected N1.84trn, the cost in H1 was N928bn and the 2018 proposals have N2.23trn. We do not know the underlying interest rate assumptions and whether the FGN incorporated the welcome narrowing of yields on its own naira issuance since August. 

Finally, we are hoping for a relatively swift passage of the 2018 budget into law but would be very surprised if it was to happen before February. 

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