FG records N1.5 trillion revenue shortfall in first six months of 2017
Former Senator Udoma Udo Udoma speaks during the senate screening of new ministers in Abuja, Nigeria October 13, 2015. Picture taken October 13, 2015. REUTERS/Stringer
The Federal Government of Nigeria has a revenue problem that will limit its capacity to deliver on capital projects in 2017 except it can get the private sector to intervene.
The government’s retained revenue totalled N1.004 trillion in the first six months of 2017, according to data compiled by BusinessDay and sourced from the Ministry of Budget and National Planning. That represents a N1.53 trillion short fall (60.5 percent off mark) as against the planned N2.5 trillion prorated estimate for the period.
The biggest slippages came from Independent Revenue, down 70 percent (N119 billion earned versus N403 billion projected), Company Income Tax, down 61 percent (N157 billion vs N403 billion) and FGN’s share of oil revenue, down 60.97 percent (N414 billion versus N1.06 trillion). Non-oil revenue also fell below the budget target by 49.96 percent (N352 billion vs N705 billion).
Even though Ben Akabueze, the director-general of the budget office, made a claim in a Reuters report on Tuesday, that the country achieved 91 per cent of the budgetary provision for the half year, the numbers available on the budget office website do not support the minister’s claims.
Akabueze may have matched total revenue earned by the Federal Government and the 36 states (N2.3 trillion) with only the Federal Government’s revenue forecast of N5.08 trillion, rather than matching it with the gross federally collectible revenue, which includes the Federal Government and all the states.
Gross federally collectible revenue was projected in the 2017 fiscal framework at ₦10.7 trillion; consisting of ₦5.3 trillion (or 49.68 percent) oil revenue and ₦5.4 trillion (or 50.32 percent) non-oil revenue, according to data obtained from the office of the accountant-general of the federation.
Lower than planned actual revenues casts doubt over government’s ability to fully implement the 2017 budget and provide the fiscal stimulus required to boost the economy recovering from its worst slump in a quarter of a century.
The Minister of Finance, Kemi Adeosun has already said that Ministries and Parastatals will be asked to roll over 60 percent of their capital expenditure plans into the 2018 budget, an indication of the revenue crisis faced by the country currently.
“The government failed to take cognisance of the economic recession on company profits and the impact of slowing imports on customs duties, in arriving at revenue projections and was over ambitious with its oil production benchmark, which is currently at a negative variance of 400,000 barrels daily,” said Johnson Chukwu, chief executive officer of Lagos-based advisory firm, Cowry Assets Ltd.
According to OPEC data, Nigeria pumped 1.8 million barrels of crude oil daily in August, 18 percent off the budget benchmark of 2.2 million barrels daily. The country produced some 1.6 million barrels daily on average in the last seven months.
“Capital expenditure would bear the brunt of the revenue shortfall, so the government must urgently review its funding model for capital projects to feature more private capital if it must get the economy going,” said Chukwu.
Chukwu’s suggestion is hardly a new counsel in Africa’s largest economy, where the government intends to stimulate the $490 billion (N149 trillion) economy with a paltry N7.44 trillion budget- about a third of which would go to paying salaries of government workers.
In the 2017 budget, N2.2 trillion is earmarked for capital expenditure, while recurrent expenditure is to gulp N2.9 trillion. A total of N1.6 trillion was earmarked for debt servicing.
“When I got wind of reports that the government was planning to build ten rail lines, I wondered why government would prefer to incur such costs when there is private capital idling away,” said Ayo Ebo, managing director of Lagos-based financial advisory firm, Afrinvest Securities.
Fidet Okhiria, managing director of the Nigerian Railway Corporation (NRC), reportedly said plans were in top gear by the Federal Government to construct 10 new standard gauge rail lines across the country.
A total of N154.89 billion was earmarked for rail projects in the 2017 budget, which is the highest after roads- which is allotted some N279 billion.
“Once government sets up the right policies, money will flow. We can start from reviewing the Public Private Partnership law to ensure that once approved by one administration, it cannot be easily upturned by another,” Ebo said by phone. “They must inspire confidence among investors.”
Rather than tap private capital, the government has developed a penchant for borrowing, pushing the country’s debt to revenue ratio to new highs.
“We note that FGN revenue has been challenged in the last two years on account of the drop in oil revenue. Furthermore, the fact that a significant part of government revenue goes towards interest payments means that little revenue is left for the government to undertake capital projects,” said Ayo Akinwunmi, head of research at FSDH Merchant bank.
“The FGN needs to improve critical infrastructure in the country to increase the competitiveness of the economy to attract investments and maintain economic growth. This effort coupled with the current tax reform of the federal government, will increase revenue accrued to the government and improve the debt service-to-revenue ratio,” Akinwunmi added.
Nigeria’s economy, which vies with South-Africa’s as the largest in Africa, emerged from recession after five consecutive quarters of contraction since the first quarter of 2016.
The economy grew by 0.55 percent (year-on-year) in real terms in the second quarter of 2017 buoyed by a 1.64 percent and 0.45 percent growth for the oil and non-oil sectors.
The oil sector GDP rebounded to positive territory while the non-oil sector performance, driven largely by the Agriculture (Crop Production), Finance & Insurance, Electricity, Gas, Steam and Air Conditioning Supply and Other Services remain strong.
However, government revenue has continued to fall grossly behind approved prorata budget estimate this year.
Net distributable sum of ₦1.0 trillion accrued to the Federation Account for distribution among the three tiers of government in the quarter, signifying a shortfall of ₦1.1 trillion when compared with ₦2.1 trillion projected for the second quarter of 2017.
This follows from the shortfall in net oil and non-oil revenues of ₦637.02 billion and ₦462.77 billion respectively in the second quarter of 2017.
“The macroeconomic performance in the quarter improved reflected an enhanced outlook and prospects for revenue and therefore raise expectations for a reasonable implementation of the 2017 budget in the remaining half of the year,” the budget ministry said in a statement on its website.
“To sustain this growth and achieve government strategic objectives, solid and courageous monetary and fiscal policies are to be sustained and judiciously implemented in the remaining half of the fiscal year.
“Fiscal stimulus and non-oil federal receipts, as well as improvements in economy wide non-oil exports, especially agriculture, manufacturing, services and light industries, which are expected to drive the growth impetus for the rest of the year, must be pursued persistently,” the statement signed by Minister Udoma Udo Udoma stated.
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