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NSR H1 2020 Excerpts - Nigerian Fiscal - Same old story

  • In this afternoon’s cut-out of our core strategy document – The Nigeria Strategy Report, we look at the major themes that dominated fiscal space in Nigeria over H2 2019 and delineate our outlook FG’s 2020 Budget.

 

  • In a seemingly unusual fashion, the 2020 budget was passed by the National Assembly in December— ~five months earlier than the norm over the past few years. While the early passage of the budget provides cause for cheer as it bodes well for FG’s fiscal cycle and its fiscal deficit financing, concerns regarding the realistic nature of specific line items in the budget lingers. That said, taking a look at the budget’s performance over the first nine months of 2019, actual federal retained revenue fell short of prorated budgeted estimate by 19%, however it is 64.8% higher than same period in the prior year. The shortfall emanated largely from lower than projected oil and non-oil receipts. On expenditure, despite lower retained revenue, FG was able to disburse 87% of its budgeted spend over the period. Bulk of this came from higher disbursement for non-debt recurrent expenditure (~96%) and debt service (~100%) while capital expenditure spends (~16%) remained frail.

 

  • Going into 2020, we remain bearish on FG’s oil revenue estimate and expect oil receipts to print at N1.4 trillion which captures our expectation for lower oil production and oil prices ($61.3/bbl.). Akin to 2019, this could spell doom for FG’s finances over the period. Similarly, we expect the underperformance in non-oil receipts to linger into 2020 due to FG’s overly ambitious estimates. On expenditure, assuming 100% implementation of recurrent expenditure and much lower capital expenditure of 45.2% (5-year average of 59%, and FY 18 of 57%), we estimate total expenditure of N7.88 trillion in 2020, which overlaid on our projected revenue scenarios suggests that the fiscal deficit could hover in excess of N3 trillion (Base fiscal deficit: N3.7 trillion). In financing its proposed fiscal deficit of N1.85 trillion, the FG has penned down different financing sources. FG’s expects to source N744.9 billion locally, N850 billion via foreign sources and N328 billion from Multi-lateral / Bi lateral loan draw down. That said, while we see room for a Eurobond issuance this year as FG appears keen, we do not rule out sizeable domestic paper issuances—particularly at the long end to cater for possible short fall in revenues and need to take advantage of the lower interest rate environment.
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ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape. ​

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