FREE

Breakfast Report - 04 December 2023

President Bola Tinubu laid the 2024 Budget Proposal at the National Assembly, this week. The ₦27.5 trillion budget (+10% y/y) will be funded by oil revenue (₦7.9 trillion), and non-oil revenue (₦10.4 trillion), leaving a deficit of ₦9.2 trillion, which will be funded largely from domestic sources. The government expects Federation Account revenue to more than double due to the depreciation of the exchange rate, higher oil production projection, and the removal of subsidies. The budget is premised on a 1.78mb/d oil output, oil price benchmark of $77.96/barrel, inflation of 21.4% and GDP growth rate of 3.76%. Key risks to oil revenue include a lower OPEC quota, a stronger dollar, and a downtrend in oil prices. Overall, while we see the exchange rate at weaker levels in 2024, this could buoy oil revenue, subject to adequate higher adjustments to pump prices. On non-oil revenue, we acknowledge the increased outperformance of corporate income tax. Measures recommended by the Presidential Committee on fiscal matters could help the administration raise its tax-to-GDP and slow down deficit accumulation over the medium term. However, a worrying trend in recent times is repeated underutilization of capital expenditure provisions while personnel costs are bound to rise as salaries of Federal workers would be reviewed across board.

Equity: We expect the market to kick off the week on a positive note, as we anticipate that year-end dividend expectations would stoke bullish sentiments in the equities space.

Fixed Income: We anticipate a flat session on Monday, as investors’ focus shifts to the NTB auction slated for Thursday. Meanwhile, we envisage a bearish session for the bonds space, as we expect sell-side pressures in the segment due to investors’ expectations of higher rates at the December bond auction.