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NSR H1 2021 Excerpts - Nigerian Fiscal - Bullish estimates amidst uncertainties

Nigeria Strategy Report – H1 2021 Excerpts

Domestic Economy and Markets

• In this afternoon’s cut-out of our core strategy document – The Nigeria Strategy Report, we focus on developments in the fiscal space over H220 and delineate our view on the FG’s 2021 budget.
• The initially approved 2020 budget of N10.59trillion in December 2019 was adjusted upwards to N10.81trillion in June 2020 in order to make provision for the intervention needed to cushion the effect of the covid-19 pandemic on the economy. However, following the crash in crude oil prices to historic low levels during the course of the year, the expected revenue available to the Federal Government for the execution of the budget was reduced to N5.37trillion (vs N7.87trillion in the initial budget), thus, widening the fiscal deficit (including GOEs) from N2.18trillion to N4.98trillion.
• Despite the downward review of revenue expectations, Federal retained revenues underperformed the FY20 budgeted estimates by 27%, printing at N3.94trillion. The shortfall in revenue generation was driven by lower non-oil receipt and subdued realized revenue inflow from other independent sources. On the expenditure leg, the FG disbursed 109% of its budgeted spend over the period. The bulk of this was driven by higher than budgeted spend on debt service (+11% to N3.27trillion) and c.100% implementation of its non-debt recurrent expenditure. However, capex spend was 11% lower than the FY20 estimate of N1.96trillion.
• Going into 2021, we are quite comfortable on the realization of FG’s oil revenue estimate. The expected recovery in global growth and its attendant impact on crude oil demand and prices should support the actualization of the assumptions made in the computation of crude oil revenue numbers. Thus, we project crude oil production and prices to average 1.90mbpd and $52.47/barrel respectively in 2021. Similarly, we project an 89% performance in non-oil revenue budgeted estimates in 2021 which is better than the 5-year average performance rate of 75%. Elsewhere on expenditure, we assume a 100% implementation rate of the budgeted recurrent spending in 2021 for our base case scenario. Similarly, we forecast a maximum implementation rate on the Debt Service and Transfer budgeted spend for 2021. However, we project capex implementation rate in 2021 to print at 60%. This implies an estimated capex spend of N1.85trillion, 6% higher than FY20 (N1.74trillion). This said, we expect FY21E fiscal deficit to print at N5.74trillion (vs budgeted N4.89 trillion, excluding GOE) which translates to a funding gap of N847billion.