FG deficit rises 17% to N4.45trn in 10mths

The Federal Government (FG) recorded N4.45 trillion deficit spending in ten months to October 2020, up by 17 percent, year-on-year (y/y), against N3.8 trillion recorded in the corresponding period of 2019.

The sharp increase in the deficit was driven by the decline in revenue which worsened in October, falling by 6.5 percent, month-on-month (m/m) to N275 billion from N294 billion in September.

The Central Bank of Nigeria (CBN) disclosed this in its monthly economic report for October 2020.

Breakdown of the CBN economic reports from January to October last year showed  28 percent, (y/y) decline in FG’s retained revenue during the ten months period, to N2.88 trillion from N3.99 trillion recorded in the same period in 2019.

In the same vein, the FG recorded 6.0 percent y/y decline in expenditure to N7.33 trillion during the ten months period to October 2020, from N7.78 trillion in the same period of 2019.

Narrating how the fiscal position of the FG worsened in October last year especially the deteriorating trend in revenue, the CBN, in the report said: “The persisting effects of the COVID-19 pandemic on the fiscal profile and operations of the Federal Government led to a huge deficit in October 2020. The estimated deficit amounted to N451.22 billion compared with the budget benchmark of N414.63 billion, the N418.50 billion in September 2020 and the N323.84 billion in October 2019. 

“The estimated fiscal deficit rose by 8.8 per cent and 7.8 per cent above the 2020 budget benchmark and the level in September 2020, respectively. The development was attributed to the 6.6 per cent decline in retained revenue,and the 1.9 per cent increase in aggregate expenditure relative to the level in the preceding month

“The revenue profile of the FGN revealed a lingering challenge due to declines in statutory receipts and persistent shortfalls in FGN Independent revenue. The total retained revenue of N274.48 billion recorded in October 2020, was significantly below the budget benchmark and the level recorded in October 2019 by 43.6 percent and 52.8 per cent, respectively.

“Releases to MDAs in respect of personnel cost and capital expenditure, were the major drivers of government expenditure in October 2020. At N725.70 billion, the provisionally estimated aggregate expenditure of the Federal Government, rose by 1.9 percent above the N712.30 billion in September 2020, but declined by 19.8 per cent below the N904.77 billion in the corresponding period of 2019. 

“Overall, total expenditure fell below the budget benchmark of N900.88 billion by 19.4 per cent, indicative of government’s revenue constraint.” 

Federation Revenue Decline

Due to the slow pace of global economic recovery and the resurgence of COVID-19 cases in some European, Asian and Latin American countries, which depressed global demand and dampened crude oil prices, the federally collected revenue in October 2020, amounted to N616.35 billion, reflecting a shortfall of 27.2 percent relative to the N846.84 billion budget benchmark. It also fell by 18.3 per cent and 33.0 per cent compared with the amounts in the preceding month and the corresponding period of 2019, respectively. 

On the application of funds, the CBN report stated: “Netting off deductions and transfers, and accounting for additional revenue from exchange rate gain, excess oil and excess non-oil revenue sources, a net balance of N616.02 billion was distributed among the three tiers of government. 

“Allocations to the three tiers of government fell in October 2020 due to the decline in distributable revenue by 5.1 per cent, 8.5 per cent and 0.8 per cent, relative to the levels in the preceding month, corresponding period of 2019 and the budget benchmark.’’

Petrol tax falls

Apparently, in line with the adverse impact of the COVID-19 on oil industry activities, the CBN report explained that taxes from the operations went down, just as the value of oil and gas revenue.

It stated: “Decline in receipts from Petroleum Profit Tax (PPT) & Royalties, was attributed to the decrease in oil revenue in October 2020. Relative to the budget benchmark and the corresponding period of 2019, oil revenue fell by 41.8 per cent and 50.0 per cent, respectively. 

“Although at N96.53 billion, Domestic Crude Oil & Gas sales rose substantially by 103.6 percent relative to receipts in September 2020, it was less than the collections in October 2019. 

“The value of Crude Oil & Gas exports fell by 64.8 per cent below its level in the corresponding period of 2019. The decline was attributed to weakened global demand owing to the lingering effects of the COVID-19 pandemic, as Nigeria’s crude oil export fell to 1.06 mbd in October 2020 from the 1.48 mbd in October 2019. “The adverse impact of the COVID-19 pandemic subdued non-oil revenue in October 2020, as receipts fell by 27.0 per cent and 1.1 percent, relative to the levels in September 2020 and October 2019. Receipts from Corporate Tax was the worst hit, having recorded declines of 56.5 per cent and 30.2 percent below its levels in September 2020 and October 2019, respectively. 

“The significant drop in Corporate Tax was due mainly to the fact that the dates for filing returns by companies were not yet due. Collections from VAT, which accounted for about 41.9 per cent, fell by 5.6 per cent to N141.86 billion, from N150.23 billion collected in September 2020.”

Public debt rises

The worsening cashflow profile of the government may have driven it deeper into debt. Consequently, the CBN stated: “Following the persistent and rising fiscal deficits, public debt outstanding remained high. Total public debt outstanding at end-June 2020 stood at N31.01 trillion or 22.3 percent of GDP. 

“This reflected an increase of 8.3 per cent and 20.6 per cent over the levels in the preceding quarter and the corresponding quarter of 2019, respectively.’’ 

The increase was attributed, largely, to the growing financing need of the Federal Government of Nigeria (FGN), as the COVID-19 pandemic continued to constrict revenue. 

Continuing the report stated: “Total FGN debt accounted for 81.5 per cent of the total debt outstanding, while states owed the balance of 18.5 per cent. ‘‘Furthermore, state governments’ share of the total external debt, which stood at 13.5 percent, constituted a contingent liability to the FGN, in line with section 47 (3) of the Fiscal Responsibility Act 2007.

“Domestic debt represented 57.6 percent of the total debt outstanding, while external debt was 42.4 percent. Analysis of the domestic debt portfolio mix indicated that short-term Nigerian Treasury Bills (NTBs) constituted 17.9 per cent, while 72.7 per cent were medium- to long-term instruments. The relatively high composition of domestic debt raises concern about the crowding out of private investment since domestic banks were the major holders of public debt instruments. 

‘‘On the other hand, foreign debt comprised loans from Commercial (35.5 percent of total external debt stock), Multilateral (52.0 per cent), and bilateral sources (12.5 per cent). The composition reflected the government’s preference for financing sources with favourable terms.”