REPORT: 2018 budget deficit may widen to N4.4tn as revenue dips

Following expected shortfall in independent revenue and recoveries, fiscal deficit in the 2018 budget is likely to widen by about 132 percent, according to a report by Afrinvest West Africa.

This implies the nation may have to increase its borrowing to meet up some of its spending obligations for the 2018 fiscal year, even as concerns over the nation’s rising debt profile heightened.

Data from the Debt Management Office reveals that Nigeria’s external debt profile rose by 114 percent from N10.32 trillion in June 30, 2015 to N22.08 trillion as of June 30, 2018.

In the ‘Nigerian Banking Sector Report’ by the Lagos-based investment banking firm, which was launched on Monday in Abuja, government’s independent revenue and recoveries, accounting for 40.5 percent of total projected revenues in the 2018 budget was predicted to underperform by 40 percent.

The company said the projection, which was premised on political distractions caused by election campaigns ahead of the 2019 polls, might widen fiscal deficit up to 3.5 percent of nominal Gross Domestic Product (GDP.

On June 20, President Muhammadu Buhari signed the 2018 Appropriation Act into law. The budget with an estimate of N9.12 trillion has N2.87 trillion allocated for capital expenditure and N3.51 trillion for recurrent (non-debt) expenditure.

A breakdown of the budget shows that a total of N2.01 trillion was estimated to be spent on debt servicing, deficit was put at N1.95 trillion, while statutory transfer and sinking fund were allocated N530 billion and N190 billion, respectively.

The budget was expected to be funded by N2.99 trillion to be generated from oil revenue and N31.25 billion from Nigeria Liquefied Natural Gas (NLNG) dividend.

Revenue from minerals and mining was projected at N1.17 billion; N1.25 trillion from non-oil revenue of which N658.55 billion will be generated from Companies Income Tax (CIT); N207.51 billion from Value Added Tax (VAT); N324.86 from the Nigerian Customs Service (NCS), while N57.87 billion was expected to come from Federation Account levies.

Furthermore, the government projected N847.95 billion from independent revenue, while N374 billion was expected from domestic recoveries, assets and fines, and N138.44 billion from other federal government recoveries.

Read also: Pension Administrators invest N4.22trn in FGN Bonds

Tax amnesty income was put at N87.84 billion; unspent balance in previous fiscal year, N250 billion, and signature bonus was to generate and N114.30 billion.

But according to the report, while the revenue projection from oil was achievable owing to increased oil prices in the internationals market, that of independent revenue and recoveries remained undoubtful.

“The Federal Government plans to generate 41.6 percent of its revenues from oil and the remainder from taxes, independent revenue and recoveries, which account for 40.5 percent of total projected revenues and have historically underperformed.

“Given these considerations as well as political distractions, we estimate a significant underperformance in revenues by 40 percent.

“Hence, we estimate the fiscal deficit to expand to N4.4 trillion above budget estimate of N1.9 trillion, representing 3.5 percent of nominal GDP, well above the three percent threshold prescribed by the Fiscal Responsibility Act,” the report read in part.

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