EUR 4.00 For Business Accounts Only

Nigeria Strategy Report H1 2019 Excerpts - Nigerian Fiscal - More strain on FG finances

• In this session, we continue discussion with the domestic section of our core strategy document – the Nigeria Strategy Report. In this segment, we focus on developments in the fiscal space over 2018. We also delineate our view on the feasibility of FG’s 2019 proposed budget and implications for government borrowing over 2019.
• In our H2 18 strategy report, we had estimated fiscal deficit over 2018 to print at N1.8 trillion – from our revenue expectation of N5.1 trillion and expenditure of N6.9 trillion – which basically formed our domestic borrowing expectation of N388 billion over 2018 after adjusting for CBN funding of 50% of the projected domestic borrowing N775 billion. Coming into 2018, actual fiscal deficit in the first nine months of 2018 printed at N1.1 trillion as higher government outlay during the period exceeded FG receipts over the same period. In a deviation from the prior year wherein the deficit was finance solely by borrowings, domestic borrowing came in significantly lower (with net issuance of N84.5 billion, 9M 17: N969.6) with the remaining deficit largely financed by CBN as FGN far exceeded its statutory limit, with net increase in the apex bank’s ways and means advances of N1.19 trillion.
•  Coalescing our expected average crude oil price of $55.95/bbl. in 2019 and our forecast crude oil production of 2.07mbpd, we project oil revenue of N2 trillion relative to budget estimate of N3.69 trillion. On non-oil revenue, following the kick-off of the divestment process of FG’s equity stake in JV oil assets in 2018, we see some room for completion during the year, albeit at a lower valuation. Overall, we estimate FG’s total revenue of N4.36 trillion, compared to budget estimate of N6.97 trillion. With our modelled budget implementation of 82%, we estimate that fiscal deficit could range between N1.83 trillion and N3.76 trillion with our base case of N2.89 trillion. In terms of financing, on the sale & privatization of government assets where FG expects N210 billion, we forecast no sale and project foreign borrowing of $2.7 billion (N825 billion) over the second half of the year. With regard the balance of N2.1 trillion which should ordinarily be financed through domestic borrowing, we assume 34%-part funding by the CBN which suggests that the government could possibly net issue ~N1.4 trillion over 2019 under our base scenario.