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Quick Take: Economy’s fragile state will continue to hamper non-oil revenue

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SAT 24 APRIL, 2021-theGBJournal- According to the January 2021 economic report of the Central Bank of Nigeria (CBN), the retained revenue of the FGN declined by 12.4% y/y to NGN285.26 billion in January, primarily due to the non-realization of revenues from special account and levies during the period.

However, aggregate expenditure increased by 31.3% y/y to NGN770.77 billion during the same period owing to the rollover and release of outstanding capital allocations to the MDAs in the 2020 budget.

Overall, the FGN’s operations led to an 85.7% increase in fiscal deficit to NGN485.51 billion in January 2021 (December 2020: NGN435.39 billion). Although the rally in oil prices and increase in crude oil production bodes well for oil revenue, we believe the economy’s fragile state will continue to hamper non-oil revenue, thereby straining overall revenue.

Thus, we expect a widening in fiscal deficits over the medium term as the government sustains its expansionary fiscal stance, which would require an increased level of borrowings.

According to the data released by the National Bureau of Statistics (NBS), States Internally Generated Revenue (IGR) declined by 3.2% y/y to NGN335.25 billion in Q4-20, bringing the total IGR for 2020FY at NGN1.31 trillion (2019FY: NGN1.33 trillion).

The marginal decline (-1.5% y/y) in States IGR was due to the declines across Other Taxes (-24.4% y/y to NGN170.49 billion), Direct Assessment (-22.3% y/y to NGN37.06 billion), and Road Taxes (-6.2% y/y to NGN30.27 billion) which offset the 5.2% y/y growth recorded in revenue from PAYE (NGN851.73 billion).

On a quarter-on-quarter basis, we highlight that the IGR increased by 1.0% q/q in Q4-20, reflecting the impact of increased economic activities compared to Q3-20. Although we expect the gloomy outlook on the labour market to weigh on PAYE, we still see scope for increased IGR in 2021FY compared to 2020, given the continued normalisation of activities in the informal sector supported by the full reopening of the economy.

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