Budget Shortfalls and Revenue Underperformance

Wednesday, April 21,2021 / 11:35AM / byFBNQuest Research / Header Image Credit: Stears

Thelatest CBN monthly report reinforces our often stated view on the FGN's publicfinances. Expenditure is not running away from the budget targets. Indeedaggregate FGN spending in March-December 2020 exceeded the pro-rata monthlybudget of NGN901bn once fractionally, another time by 11% and the third time by22%. Underperformance was the norm. The deficit regularly overruns the targetbecause revenue collection disappoints, which, in turn, is a consequence ofoverambitious projections. FGN retained revenue was set at NGN486bn per monthin the 2020 budget and consistently fell short. The outturn was just NGN282bnin December. The shortfall reflects a lower-than-expected payout from thefederation account, and zero payments from both excess non-oil revenue andmiscellaneous inflows (ie special levies and accounts).

Other than two months (March andOctober), capital spending was well below budget of NGN207bn in 2020. It soaredto NGN479bn in January '21 (see chart), which the FBN commentary explains as "the roll-over of capital spending" from the 2020 budget to the ministries,departments and agencies. Its 62.1% share of total expenditure in January,compared with 31.8% for recurrent items and 6.1% for transfers (a combinationof both), should therefore be viewed as a one-off.

Personnel costs are rising other thanan anomaly in January, which suggests that the FGN is honouring the latestnational minimum wage.

In the 2021 budget the pro-ratamonthly budget has been hiked by 25.6% from NGN901bn to NGN1.13trn. We expectanother shortfall in spending because of underperforming revenue collection anda similar sequence of events to 2020's, ie the deficit overshoots the target.The disappointment is likely to be greatest with capital items, for which theauthorities hopefully project an increase of more than 70% to NGN4.37trn thisyear.

We are commenting on broad trends,given that the data in this series is often revised and that the posting ofexpenditure items under the set categories can be surprising on occasions.

There are also some strikingdifferences with the series shared by the Budget Office of the Federation inits implementation reports, both in timing and definition. For example, thebudget office, unlike the CBN, includes the FGN's interest payments on its Waysand Means advances (its overdraft with the CBN) in its figures for debtservice.

Monthly FGN spending (NGN bn)

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