Wednesday, June 08, 2016 8:58AM /FBNQuest Research
We attended a presentation in London yesterday by the federal finance minister, Kemi Adeosun, within the FGN’s non-deal roadshow. She provided much information, some of which we share, and prompted us to call for more regular briefings for the investor community and financial media.
The most important take was her insistence that, if the FGN falls short on its aggressive targets for non-oil revenue collection this year, it would trim its capital spending plans rather than allow the deficit to grow beyond the projected N2.20trn (US$11.2bn). This was the consistent message of the Buhari election campaign in early 2015.
The FGN was paying N165bn per month for the salaries of the 1.2 million civil servants. The ministry has seconded 300 employees from the office of the accountant-general of the federation to full time auditing of the payroll. To date, more than 43,000 names have been removed, and N4bn saved from the monthly salary bill.
Government travel costs amounted to N64bn in 2015, and spending on roads to N19bn. The first has been slashed by N12bn per year with the introduction of new guidelines.
Rather than follow the IMF’s advice and double the standard rate of VAT to 10%, the ministry’s plan is first to triple the compliance rate to 30%.
In the past six months, a total of 360,000 companies have been registered for income tax including a good number of FGN contractors.
Adeosun put the float in the treasury single account at N3.3trn, and noted that the ministry was continuing to unearth pockets of revenue that had escaped its net. Examples included visa fees, airport landing charges and shipping levies.
She observed that the ministry was better able to “coordinate” the economy now that the NNPC provides it with detailed quarterly accounts.
Adeosun accepted the foreign and domestic legal challenges to making recoveries but expects the FGN to hit the budget target for the year of N350bn. One issue is the confiscation of assets in kind, not cash.
The infrastructure backlog is such that the minister sees budget deficits for at least three years ahead. Public debt could rise from 13.2% to 20.0% of GDP over the period. For the current year, the FGN is looking to borrow US$4bn to US$5bn equivalent externally.
There was no update on the talks with multilateral partners (there are none with the IMF) and we could see a return to the market in Q3 in the form of a Eurobond or renminbi bonds.