EUR 4.00 For Business Accounts Only

NSR H2 2019 Excerpts - Nigerian Fiscal - CBN backdoor financing will constrain local borrowing

• In this afternoon’s cut-out of our core strategy document – The Nigeria Strategy Report, we focus on  developments  in the fiscal  space over H1  2019. We also  delineate our view on the feasibility of FG’s 2019 Budget projections and implications for government borrowing farther out.
• In our H1 19 strategy report, we had estimated fiscal deficit over 2019 to print at N2.9 trillion – from our revenue expectation of N4.4 trillion and expenditure of N7.2 trillion – which basically formed our domestic borrowing expectation of N1.4 trillion after adjusting for CBN part funding of 34% of the projected domestic borrowing N2.1 trillion. Coming into 2019, actual fiscal deficit in the first five months of 2019 printed at N825 billion (-50% YoY) Reflecting the lag in FG’s retained revenue relative to budget implementation. However, FG borrowed just N371.8 between January and May, representing 45.1% of the total deficit, with no foreign borrowings over the period. For us, we believe the excess deficit of N426.8 billion was funded by the CBN similar to the prior year. To clarify, total overdraft claims on FGN increased by N615.1 billion between December 2018 and April 2019 – which translates to 15.8% of 2018 actual FGN revenue. That said, total overdraft claims on FG now prints at N6.0 trillion as at April.
• Over 2019, we expect federally collected revenue to print at N4.2 trillion (53% lower than budget projections), which is 6% higher than the prior year. Our estimate is based on expected average crude oil price of $62.31/bbl. and our forecast crude oil production of 2.04mbpd, which resulted in oil revenue of N1.8 trillion (budget estimate of N3.7 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. With our modelled budget implementation of 89%, we estimate that fiscal deficit could range between N3.0 trillion and N4.8 trillion with our base case of N3.7 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 $2.2 billion (N803 billion) over the second half of the year. With the balance of N1.8 funded by the CBN as in the prior year.