Nigeria’s fiscal deficit may widen further in 2018 due to the persistent shortfalls seen in federally collected revenue, analysts at Lagos-Based CSL stockbrokers says.
Gross revenue collected by the federal government in the month of October stood at N682 billion, a 62.3 percent fall below the N1.1 trillion monthly budget estimate, according to the Central Bank of Nigeria (CBN) monthly economic report for October.
This trend has remained the case in 2018 as monthly revenues generated have consistently fallen short of the projection with the highest collection being N948 billion that was recorded in July.
Income from both components of the Federal revenue, oil and non-oil revenues, have been disappointing this year, a situation the stockbroking firm say will trigger a higher borrowing from the government.
“A revenue short fall and no ease up in expenditures suggest the government will need to seek more funding by issuing debt”, the stockbroking firm said.
Oil receipts which came in at N422 billion in the month of October, was 34 percent short of its monthly budget target while non-oil proceeds were short of estimate by 44 percent at N260 billion.
Oil earnings have been under pressure due to combined effect of lover production levels and reduced demand for Nigeria crude.
The advancement of the US shale extraction has dealt a much steeper blow to the Nigerian economy, whose foreign exchange earnings is largely dependent on crude oil exports, accounting for about 80 percent of its product export. The US has cut down greatly, its importation of oil.
Until about six years ago, the US was a major importer of Nigeria’s bonny light crude purchasing as much as 53 percent of the country’s crude in 2007.
The decline in demand for the bonny light by the US appears to have worsened in 2018 as the US Energy Information Administration(EIA) reveals that UC crude import for Nigeria stood at 45 million barrel as at September from as high as 95mb in 2017.
In addition to gradually losing the US market for oil, Nigeria has also lost some major buyers like Canada and Brazil to the US as shale oil is extremely similar in quality to light sweet Nigerian crude oil and also trade at discount to Nigeria’s crude making it a less costly alternative. This poses a threat to the Nigeria’s crude sales and could adversely impact foreign exchange earnings, creating instability in the Nigerian foreign exchange market.
Qatar with a daily production of 670,000 bpd has announced plans of exiting the Organization of petroleum Exporting Countries (OPEC), a cartel that puts a quota on the production volume of its members, as of January 2019.
“We do not think that Qatar’s actions will have a material impact on oil prices, in particular as Saudi Arabia and Russia have announced that they will continue to co-operate in restricting production to keep price firm, CSL said in a DEC.4 note to clients. If prices rise too high, president trump will ratchet up rhetorical pressure on Saudi to increase production”.
Brent crude oil prices sold for $61.97 per barrel as at Mon, according to Bloomberg data, representing a 3.3 percent increase compared to the revised $60 oil benchmark in the 2018 budget.
The oil sector, that accounts for about 9 percent of the country’s Gross Domestic Product (GDP), is the country’s major source of revenue constituting 62 percent of total revenues collected in October, the apex bank said.
In addition, efforts by the government to improve collection from taxes, independent revenues and recoveries have not been as effective as anticipated and has contributed to government revenue missing its projected estimates.
The federal government’s aggressive spending proposal contradicts its earnings reality and could compel it to increase its borrowings, which could widen the N1.95 trillion fiscal deficits that was approved in the 2018 budget. “having been to the international market once, and considering how late in the year it is, we think the international market will depend on domestic resources by issuing more domestic debt”.
Nigeria has successfully raised a $2.8 billion in Eurobond, the first this year and the fifth since the Buhari-led administration came into power, to enable Africa’s largest economy fund its 2018 budget.
The federal government plans to cut its 2019 budget by 5.15 percent lower than this year after its 2018 budget was trimmed to N8.7 trillion from the N9.12 trillion earlier approved. This will enable the economy lower its debt and set it in a sustainable path even as the economy is still recovering from a recession it suffered in 2016, Udo Udoma, Minister of budget and planning said when he presented the Medium Term Fiscal Framework and Fiscal Strategy Paper for 2019-2021, a draft document on which the budget is base
The National Bureau of Statistics will on Monday 10th December 2018, release data for Q3 GDP and Foreign trade by 9am and 5pm respectively, according to a tweet by Yemi Kale, Nigeria’s statistician general.
While the country is waiting for the release of GDP figure, it largest African counterpart, South Africa on Monday released its GDP figure, for Q3 2018, showing an exit from recession after two consecutive quarters of Negative growth, thanks to its manufacturing and agricultural sector.
GDP growth SA stood at 2.2 percent on a quarterly basis and 1 percent year on year, with its manufacturing and agricultural sector recording a growth of 7.5 and 6.5 percent respectively.
Tags: manufacturing and agricultural sector