The Budget Office of the Federation of Nigeria released the draft for the 2023 – 2025 Medium Term Expenditure Framework/Fiscal Strategy Paper (MTEF/FSP), laying out proposed budget estimates for the next three years. The medium-term projections differ from those in the National Development Plan 2021 – 2025 as it serves as an update based on continuing global and domestic challenges in the aftermath of Covid-19. The challenges that have shaped the key parameters and macroeconomic projection include the impact of the Russian-Ukraine war on food & energy prices, renewed elevated inflation, monetary tightening stance in most economies, negative impact of insecurity on the domestic economy, resurgence of Covid-19 in some major economies, amongst others. However, the document provided insights into the government’s budget implementation performance for the year's first four months (January to Apr 2022).

Overall, revenue performance printed at a disappointing 54.4% of budgeted Revenue, the lowest level in more than three years, as Total Revenue for Jan – Apr 2021 stood at N1.5tn. Non-oil revenue performance stood at 84.0%, driven by the strong performance in the collection of a Company Income Tax (CIT) (99% of its target) and Value Added Tax (VAT) (98% of its target). However, the government only generated 39.1% and 37.5% of its projected Revenue for Oil and Independent/Other revenue segments. The underperformance is mainly due to weaker than projected oil production, with crude oil production averaging 1.32mbpd as of Apr-2022 (compared to the budget benchmark of 1.60mbpd). The NNPC and FGN blamed the reduced output on theft and production downtime. Oil revenue segment continues to disappoint despite crude prices being above the benchmark of $70 (Brent crude has averaged $104.5 in 2022).

Overall, the Federal Government’s fiscal balance remains weak and would require significant improvements to achieve its ambitious targets. Notably, the debt servicing to Revenue ratio stood at 1.3x, as debt servicing expenditure stood at N1.9tn. This indicates that the country’s Revenue is insufficient to cater to servicing its debt, representing just a segment of its Total Expenditure. Looking ahead, we expect the government’s revenue to further dampen on the back of ailing global demand for crude. For Non-oil Revenue, we expect the sustained recovery in economic activities will continue to support tax collections while the higher VAT rate would provide further support.