The Federal Government of Nigeria’s (FGN) 2016 revenue was 50% below target at 6M FY16. Only 20% of capex had been executed, equivalent to the foreign borrowing share secured thus far. Debt-servicing amounts to two-thirds of FGN revenue. The budget deficit stood at 3.2% of GDP vs the target of 2.2%, largely due to softer nominal GDP growth.
Oil accounts for less than 50% of federally-collected revenue
Federally-collected revenue (allocated to the federal, state and local governments) fell in 2Q16, for the eighth consecutive quarter, by 18% YoY to NGN1.1trn. This decline was led by oil revenue, which fell by one-third to NGN398bn. Oil’s contribution to revenue dropped to 46% in 2Q16 vs this decade’s peak of 78%.
FGN revenue collections are 50% below target
The FGN’s plan is to spend NGN6.1trn in FY16, of which it plans to source NGN3.86trn from revenue collections, and the remaining NGN2.22trn from debt. At 1H16, the FGN’s retained revenue amounted to NGN952bn, which is half of the pro rata target of NGN1.9trn. The FGN’s below-target revenue collections were largely due to non-oil revenue, which came in 56% below target, at NGN324bn. Conversely, the FGN’s oil revenue was 13% above target at NGN406bn.
Fall in non-oil revenue reflects malaise in economy
Company income tax (CIT) is the largest source of non-oil revenue for the FGN. In FY16, the FGN planned for 60% of its non-oil revenue to come from CIT. At 1H16, CIT amounted to NGN324bn, which was only one-third of the pro rata target. Customs revenue – which accounts for c. 20% of the FGN’s targeted non-oil revenue – amounted to NGN163bn at 1H16, which is only two-thirds of the pro rata target. VAT – which accounts for c. 15% of planned non-oil revenue – came to NGN162bn, which is half of the pro rata target. The poor showing from CIT, VAT and customs revenues, in our view, reflects an economy in recession.
Capex is 75% below target
At 1H16, FGN had spent NGN2.5trn, which was 80% of target. The under-execution of the FY16 budget was entirely due to capex. Only 20% of the capex target, of NGN794bn, was spent in 1H16. This reflects the late passage and signing of the budget by the Senate and President Buhari, respectively, and the delay in raising NGN1.0trn in foreign loans for the budget. Conversely, recurrent expenditure (non-debt) was 12% ahead of target. Notably, spending on personnel costs was on target.
Debt servicing amounts to two-thirds of FGN revenue
Nigeria’s debt stock may be low, at c. 14% of GDP, however, it is the country’s high debt-servicing costs, relative to total spend and revenue, that will constrain how much additional debt the FGN can take up. In 1H16, debt servicing amounted to 25% and 64% of total expenditure and total revenue, respectively. That implies debt servicing is crowding out other expenditures, not least capex.