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Analysis: Here is why FGN’s fiscal deficit is wider than preliminary estimates

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SAT 12 JUNE, 2021-theGBJournal- We received the Q4-20 budget implementation report from the budget office, and it showed that the FGN’s fiscal deficit was wider than preliminary estimates. For one, total revenue in Q4-20 (NGN824.87 billion) was 38.5% below the budgeted amount (NGN1.34 trillion) due to declines across major non-oil revenue sources – CIT (-25.8% y/y), VAT (-14.0%) and FGN’s share of signature bonus (-99.9%).

Elsewhere, total expenditure of NGN2.68 trillion during the review quarter outperformed the budgeted estimate of NGN2.49 trillion by 7.6%.

Thus, the fiscal deficit printed NGN1.86 trillion in Q4-20, bringing the 2020FY actual deficit to NGN6.60 trillion (or 4.3% of GDP) – NGN453.13 billion above the preliminary estimate (NGN6.15 trillion).

Looking ahead, we expect the recovery in economic activities to support FGN non-oil revenue amidst a price-induced increase in oil revenue.

However, we expect the government’s expansionary fiscal stance to keep expenditure elevated. Overall, we expect the 2021E fiscal deficit between NGN5.01 trillion and NGN5.42 trillion.

Recent data published by the Debt Management Office (DMO) revealed that Nigeria’s public debt stock increased by 0.6% q/q to NGN33.11 trillion in Q1-21 (Q4-20: NGN32.92 trillion).

We highlight that the increase in the debt stock was due to a 2.1% q/q increase in domestic debt to NGN20.64 trillion (Q4-20: NGN20.21 trillion), reflecting (1) increased bond issuance and (2) promissory notes issued to settle the inherited arrears of the FGN to State Governments and exporters during the review period.

Meanwhile, external debt (37.7% of total debt) declined by 1.9% q/q to NGN12.47 trillion (or USD32.86 billion) following the redemption of the USD500.00 million Eurobond, which matured on 28th January.

Barring the securitisation of the outstanding CBN’s Ways and Means, we expect the total public debt stock to hit NGN37.78 trillion in 2021FY in line with the additional borrowing by the States and FGN to fund their 2021 fiscal operations – estimated at NGN4.86 trillion.-Analysis is courtesy Cordros Research

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