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Nigeria Strategy Report H2 2018 Excerpts- Nigerian Fiscal: Déjà Vu All Over Again?

• We continue with the serialization of our core strategy document – The Nigeria Strategy Report, with today’s excerpt focusing on developments in the fiscal space over H1 2018. We also delineate  our view on the feasibility of FG’s 2018 projections and implications for government borrowing farther out.
• In our H1 18 strategy report, we had estimated fiscal deficit over 2018 to print at N9 trillion – from our revenue expectation of N4.4 trillion and expenditure of N7.3 trillion – which basically formed our domestic borrowing expectation of N1.7 trillion over 2018. Coming into 2018, actual fiscal deficit in the first 2 months of 2018 printed at N10 billion (split into N288.9 billion in January and N221.7 billion in February) due to higher government outlay which exceeded FG receipts over the same period. Precisely, the FG’s receipts of N561.7 billion over the first two months stemmed from higher oil prices and crude production while expenditure over the same period printed at N1.1 trillion.
• History seems to be repeating itself. In terms of domestic borrowing over the period, FG net issued N7 billion and N109.6 billion in January and February respectively which combined sums up to N232 billion – 45.5% of actual fiscal deficit – implying that FG must have sourced funding from alternative sources to meet the balance of N278 billion. Perusing through the financial statement of the Apex bank revealed an increase in CBN claims on the federal government to the tune of N715 billion over 2M 18 wherein we believe the FG must have drawn down on to fund the shortfall between fiscal deficit and domestic borrowing.
• Over 2018, we expect higher crude oil prices and production to bolster oil receipts and, by extension, FG retained revenue. With a budget implementation of 75% (100% recurrent & 40% Capex – June to December 18), we now expect fiscal deficit to print at N78 billion over the year. In terms of financing, on the sale & privatization of government assets where FG expects N311 billion, we forecast receipt of 50% of the expected proceeds. On foreign borrowing, we expect the FG to issue $2.8 billion (N850 billion) in Eurobonds over the second half of the year. With regard the balance of N775 billion which should ordinarily be financed through domestic borrowing, we assume 50% part funding by the CBN which suggests that the government could possibly net issue ~ N388 billion over 2018 under our base scenario.