…as revenue projections continue to miss benchmark
By JULIUS ALAGBE
The federal government’s 2020 budget faces fresh challenges of performance as the revenue projections for its funding seem to be run into more hiccups. In the past five years since this government budget performance has been a major headache with an average annual performance at less than 25 percent, especially for capital expenditure.
The major reason for this poor performance has been the underfunding of capital projects which have always been funded by borrowing. As to be expected, some of the borrowings, both domestic and external did not crystallize, as well as instability in the oil market, which disrupted budget performance.
With the 2020 budget government’s deficit has been estimated to widen. In the fourth quarter, the nation recorded N1.14 trillion deficits according to recent data from the Central Bank of Nigeria, CBN. Due to unstable global prices of crude oil plus slow production volume, analysts have predicted that budgeted revenues may underperform estimates significantly.
Of the total budget of N10.59 trillion passed, about N2.18 trillion, accounting for about 21% represents the deficit which the government planned to finance with borrow funds. The nation’s debt stock has ballooned but the Ministry of Finance had said repeatedly that there is no cause for alarm, using the debt to GDP ratio, which now stands at about 34 percent, while debt to revenue or budget is at 68 percent.
This means that for every naira budgeted for the year, the government spends 68 kobo on debt service, not repayment. As a consequence, the apex bank warned at its last Monetary Policy Committee about the impending blow out from rising debt stock. This, just as the International Monetary Fund and other supranational and international rating agencies remain bearish on the borrowing strategy of the government.
The N2.725 trillion stated to service the nation’s debt represents more than 46% of the total budget. The CBN revealed that the Federal Government’s total expenditure was more than total receipts by about N1.4 trillion in the fourth quarter of 2019. CBN revealed this in its fourth quarter of 2019 economic report.
The apex bank stated that the provisional Federal Government retained revenue in the review quarter was N938.72 billion, while total estimated expenditure amounted to N2.074 trillion, resulting in an estimated deficit of N1.136 trillion.
In addition, the report highlighted that non-oil revenue for the period dropped when compared with the equivalent period in 2018. Then, the apex bank explained that it maintained the monetary policy rate at 13.50 percent. It also held that average term deposits and prime lending rates receded, the move that analysts attribute to the adjustment made in the CBN’s Open Market Operations.
“On a quarter-on-quarter basis, broad money supply (M3) grew by 4.1 percent to N36, 478.13 billion at the end-November 2019, compared with 0.4 percent and 8.1 percent increase at the end of third quarter 2019 and fourth quarter of 2018, respectively”, the CBN held.
The apex bank remarked that the development reflected, wholly the 2 percent increase in net foreign assets, which more than offset the 1.2 and 10.6 percent decline in net domestic credit and other assets (net) of the banking system, respectively.
However, over the level at the end of December 2018, a broad money supply (M3) grew by 9.3 percent at the end of November 2019, compared with the growth of 5.1 and 16.4 percent at end of third quarter 2019 and fourth quarter of 2018, respectively.
It said the growth in M3 reflected, wholly, the 28.8 percent increase in domestic credit (net), which more than offset the 22.8 percent and 4.9 percent decline in net foreign assets and other assets (net) of the banking system, respectively.
“But narrow money supply (M1) fell by 1.7 percent to N10, 930.57 billion at end-November 2019, compared with the decline of 0.4 percent at the end of third quarter 2019”, the report reads. CBN remarked that developments in banks’ deposit rates were mixed, while lending rates trended downwards in the fourth quarter of 2019.
The report revealed that with the exception of the average savings and seven days deposit rates, which rose from 3.69 percent and 3.23 percent to 3.93 percent and 3.30 percent, respectively. All other deposit rates of various maturities fell from a range of 8.23 – 10.29 percent in September 2019 to a range of 7.93 – 9.92 percent in December 2019.
“The average term deposit rate fell by 0.29 percentage point to 8.07 percent at the end of the review quarter”, CBN noted. The report stated that the weighted average prime lending and maximum lending rates fell by 0.35 percentage point and 1.2 percentage point to 14.99 percent and 29.98 percent at end-December 2019.
Consequently, the spread between the weighted average term deposit and maximum lending rates narrowed by 0.91 percentage point to 21.91 percentage points at the end of the review quarter. CBN said the margin between the average savings and maximum lending rates narrowed by 1.44 percentage points to 26.05 percentage points at the end of December 2019.
According to the apex bank, the total value of money market assets outstanding in the fourth quarter of 2019 stood at N12.76 billion. This showed an increase of 2.6 percent, compared with the increase of 2.9 percent at the end of the third quarter of 2019. It said the development was attributed, largely, to the 3.1 percent increase in FGN Bonds outstanding during the review quarter. Developments on the Nigerian Stock Exchange (NSE) were bearish, CBN remarked.
The CBN said in the report that federally collected revenue in the fourth quarter of 2019 fell below both the provisional quarterly budget and receipts in the preceding quarter by 30.8 and 10.6 percent, respectively.
“The development, was due, largely, to the shortfalls in receipts from both oil and non-oil revenue components in the review quarter”, CBN added.
The apex bank, however, stated that agricultural activities in the review quarter were dominated by the harvest of cash and root crops. It said in the livestock sub-sector farmers engaged in the fattening of cattle and stocking of poultry in anticipation of the end of the year sales. The period headline inflation, on a year-on-year basis for the fourth quarter of 2019, stood at 11.98 percent.
Meanwhile, foreign exchange inflow, through the CBN, rose by 6.1 percent, while outflow fell by 3.9 percent, relative to their levels in the third quarter of 2019. The economic report stated that total non-oil export proceeds received by banks fell by 37.8 percent, compared with the level at the end of the third quarter of 2019.
The average naira exchange rate vis-à-vis the U.S. dollar depreciated at the inter-bank, BDC segment, and the Investors & Exporters window.
“The average exchange rate at the ’Investors’ and ‘Exporters’ window, the BDC and the Inter-bank segments of the market were N362.83/US$, N359.42/US$ and N306.95/US$, respectively, in the review quarter.
“At US$38.07 billion, the gross external reserves fell by 6.4 percent, compared with the level at end of third quarter 2019”, CBN said in the report. Stretching further, CBN said World crude oil demand and supply were estimated at 100.95 million barrels per day (mbd) and 99.32 mbd, respectively, in the fourth quarter of 2019, compared with 100.63 mbd and 99.26 mbd demanded and supplied in the third quarter of 2019.
It said Nigeria’s crude oil production, including condensates and natural gas liquids, was estimated at an average of 1.92 mbd in the review quarter, compared with 1.91 mbd in the preceding quarter. But a marginal decline was recorded in the average price of oil in the period.CBN’s report revealed that the average price of Nigeria’s reference crude, the Bonny Light (370 API), was US$64.87 per barrel in the fourth quarter of 2019.
This represents a marginal drop when compared with US$64.25 per barrel in the third quarter of 2019.
“Movement in oil prices were driven, mainly, by the optimism of a trade agreement between the U.S. and China, as well as the improved outlook for global oil demand amid better-than-expected economic performance of some major economies in the review period”, the CBN noted.
In the first quarter of 2020, the global price of oil has receded, trading below $55 per barrel compared with $57 per barrel used to prepare the budget. The amount in excess crude accounts has been used up, now hovering around $70 million according to data provided by BudgiT.