Tuesday, October12, 2021 / 11:19 AM / by FBNQuest Research / Header ImageCredit: Vanguard

TheFY '22 budget which was presented by the President to a joint session of thenational assembly last week Thursday contained a total expenditure ofNGN16.4trn, c.12% higher than the NGN14.6trn budget (inc. supplementary) for FY '21. As expected, the budget continued the administration's expansionary fiscalpolicy. We note that, as in previous years, the FGN has set an ambitiousrevenue target of NGN10.1trn, or 24% above the FY '21 target, implying a fiscaldeficit of -NGN6.3trn, or 3.7% of forecast GDP, down from the 4.5% projectedfor FY '21.

TheFG is bullish on its oil revenue forecast, estimated at 33% of total. TheUSD57/barrel oil price benchmark looks acceptable given current pricing.However, we believe the oil production target of 1.88 million barrels per day(mbpd) is ambitious, given the current (Jan-Aug) '21 run-rate of c.1.57 mbpdprovided in a town hall presentation by the minister of finance.

Also,we find the FG's projection that it will generate c. NGN4.5trn from othersources including, independent revenue, signature bonuses, special levies, and(net) revenue from government-owned enterprises optimistic, given a historicalrecord of underperformance. Drawing from the finance minister's presentation,revenue from these sources were tracking -34% below their pro-rata run-rate forthe Jan-Aug '21 period.

Ofthe total expenditure, non-debt recurrent costs are expected to take upc.NGN6.8trn (or 42% of total), representing an increase of 21% y/y which welink to a rise in the government's wage bill due to salary reviews fromnegotiations with various employee groups.

Asa result of the administration's emphasis on capital spending, the allocationto capital expenditure in the FY '22 budget has been increased slightly toNGN5.4trn from NGN5.2trn in the FY '21 budget. However, due to the budget'slarger size, the overall capital allocation is down to 33% of totalexpenditure, down from c.36% in FY '21.

Theforecast debt service cost (inc. sinking fund) represents 24% of the overallbudget, and implies a debt-service to revenue ratio of c.39%, down from 41% inthe FY '21 budget. We see from the minister's presentation that the actualdebt-service (inc. ways and means) to revenue is presently running at c.73%.

Theprojected fiscal deficit is expected to be funded by new borrowings ofNGN5.01trn, split evenly between domestic and foreign sources, c.NGN1.2trn frommultilateral/bilateral project tied loans, and privatisation proceeds ofNGN91bn. Given the aggressive revenue assumptions, we expect the actual fiscaldeficit to be larger than anticipated.

Download PDFsHere - Budget 2022: Budget of Economic Growth and Sustainability

2022 FGN Budgetproposal - Public Presentation

2022Appropriation Bill

Related News

1. Some Traction in Non-Oil Revenue Collection
2. Stakeholders Explore Broadening Non-Oil Revenue At NESG Better Tax Initiative
3. Non-oil Revenue Collection Well Below Pro Rata Budget Figure of N467bn
4. Large Shortfall In Non-oil Revenue Collection
5. IMF harps on Structural Reforms, Non-Oil revenue mobilization for Nigeria's Economy
6. N2.63trn Flows into Federation Account from Non-oil Revenue in 12 Months
7. Non-Oil Revenue Forecasts In MTEF and FSP Aligns with Pro-Rata Earnings to Date
8. Non-oil Revenue Already Below Budget
9. Tall Order of Non-oil Revenue Targets
10. A slow start on non-oil revenue collection

Related News on Budget and Plans

1. 2022 Budget Proposal: Fiscal Deficit Rising on Account of Defence Spending
2. Budget 2022: Budget of Economic Growth and Sustainability
3. Nigeria Back at International Capital Market with Eurobond Offer
4. Medium-Term National Development Plan: A Herculean Task?
5. MTNDP 2021-2025: A Hope for Revival or Keeping up With the Joneses?
6. 2022-2024 MTEF and FSP Will Provide Guidance to MDAs
7. 2021 Appropriation Act: FGN Appoints Transaction Advisers for a Eurobond Issuance
8. DMO Issues Update on the N2.343trn New Capital Raising in the 2021 Appropriation Act
9. Security Budget: A Move to Proper Security Spending?
10. President Buhari Requests for NASS Resolution for N2.343trn New Capital Raising
11. 2021 Budget: FG Asked to Block Loopholes And Investigate 314 Duplicated Projects