Data obtained from the Organisation for Economic Corporation and Development (OECD) revealed that Nigeria’s gross Federal Revenue to Gross Domestic Product (GDP) ratio has declined consistently from 17.9% in 2011 to 6.1% in 2016, 7.6% in 2019 and 4.67% in 2020 and remains the lowest amongst its peers and from all indications, the lowest in Africa.
With a nominal GDP of N164.27trn (US$432.29bn) in 2020, the Gross Federal Revenue stood at N7.66 trillion ($17.74 billion) while Net Federal Revenue was N5.36 trillion implying that the Gross and Net Revenue to GDP ratio were 4.67% and 3.27%, respectively. Similarly in 2021, while nominal GDP grew to N182.26 trillion (US$440.78bn), 9M Gross and Net Federal Revenue was N7.28trn (US$17.62bn) and N5.66trn (US$13.68bn), respectively as of September 2021. This is despite the increase in Value Added Tax rate in February 2020.
Based on the four-month fiscal report of the economy released by the Minister of Finance, Zainab Ahmed, FGN’s retained revenue was only N1.63trn, 49% of the prorated target of N3.32trn. The revised government expenditure for 2022 was estimated at an all-time high of N17.31 trillion. Revenue projection of N9.96trn will likely underperform estimate as already being seen in Q1.
In our view, oil revenue will significantly fall short of the target, but non-oil revenue will outperform budget estimates. For non-oil revenue, we believe that the authorities’ non-oil revenue targets particularly on VAT and CIT collections are achievable. Even as of April 2022, collections from VAT and CIT revenue hit 98% and 99% of their prorated targets, respectively.
While we retain our 2022e real GDP growth forecast at 2.8%, based on the January to April actual revenue figure of N1.63trn as released by Zainab Ahmed, annualised federal revenue comes to N4.89trn with a deficit of N12.42 trillion. This implies gross federal revenue to GDP ratio of 2.6% based on our forecast nominal GDP of N188.38 trillion ($453.12 billion) Crude oil production reached a low of 1.28mbd (Including condensates) in May 2022. We do not anticipate any significant recovery in the near term, and this will continue to keep oil revenue below budgeted target. In our view, the government needs to focus more on increasing non-oil revenue to achieve fiscal consolidation.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
