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FG’s Fiscal Deficit Jumps 101% To 9-year High Of N1.1trn


The Federal Government of Nigeria’s fiscal deficit has risen sharply to a nine-year high of N1.1 trillion in the first quarter of 2017, according to the Central Bank, as low oil prices took a toll on revenues, even as the government raised spending.
A fiscal deficit is the difference between revenues and expenditure. It is a deficit when expenditure exceeds revenues. The deficit is a 101 percent increase, compared to the first quarter of 2016, when the government incurred a spending deficit of N531 billion. Compared to the same period of 2014 and 2015, it is a 724 percent and 67 percent increase, respectively.
On a quarterly basis, the deficit rose 56.7 percent from N680.8 billion in the fourth quarter of 2016.
In the first quarter of 2017, the FG’s retained revenue came to N608 billion, while expenditure totalled N1.67 trillion. Pressed to spend its way out of an economic slump, the first such slump in over two decades, Nigeria approved a 2017-spending plan of N7.4 trillion in May, even though it lacks the revenues to back it up.
The budget has a N2.36 trillion deficit, but underperforming oil and non-oil revenues have stoked the deficit and forced government to borrow at a frantic pace, with fears that the deficit, based on the first quarter trend, may be exceeded by the end of the year. Funding the deficits could swell Nigeria’s debt profile. The Federal Government’s total domestic debt stock, as at March 2017 rose 8 percent to N11.9 trillion, from N11.05 trillion as at December 2016, while external debt stood at $US 39 billion, according to data from the Debt Management Office (DMO).
“The deficit explains why the government has been borrowing massively, stoking interest rates and crowding out the private sector,” said Johnson Chukwu, CEO of Lagos-based financial advisory firm, Cowry Assets. “The challenge of such public borrowing is that it stifles credit to the productive (private) sector and would have a negative effect on the speed at which the country can exit recession.
“Revenue has tanked and the government needs to take bold measures to cut down recurrent expenditure, to engender frugal spending,” Chukwu said.
Pabina Yinkere, head of institutional business at Lagos-based investment bank, Vetiva Capital, urges the country to focus on growing its revenues.
“The bulk of our revenue comes from oil, which we do not have control over (in terms of prices), for production, which we have some control on, we must ensure output is steady, or even grow it from current levels,” Yinkere said in an interview.
Nigeria should also strive to raise its tax collections by enforcing better compliance, according to Yinkere.
The CBN figures show that Federal Government’s retained revenue for the first quarter of 2017 based on provisional data, amounted to N608.11 billion. This was below the proportionate quarterly budget estimate and the receipts in the preceding quarter by 9.9 and 31.0 percent, respectively.
Of the total revenue, the Federation Account accounted for 58.6 percent, while Federal Government Independent Revenue, VAT, and others (NNPC Refund and Exchange Gain) accounted for 12.8, 10.9, 9.3, 5.3 and 3.1 per cent, respectively.
At N1.67 trillion, the CBN data indicated that the Federal Government’s expenditure for the first quarter of 2017 was above the provisional quarterly budget estimate and the level in the preceding quarter by 6.9 and 7.3 per cent, respectively. The development, relative to the proportionate quarterly budget estimate, was attributed to the rise in capital expenditure.
A breakdown of the total expenditure, showed that the recurrent expenditure at 63.3 percent still dominated, while capital and statutory transfers accounted for 31.7 and 5.0 percent, respectively.
Nigeria’s economy, which vies with South Africa’s to be the largest on the continent, shrank by 1.5 percent last year, the first contraction since 1991, after revenue from oil, its biggest export, fell by almost half.
About 30 percent of the budget will be spent on roads, rail, ports and power, to help stimulate business activity.
Spending on capital projects to promote exports and in the oil-producing Niger delta region, is expected in the second half of the year. “Capital projects are likely to suffer, as revenues underperform,” said Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI). Indications are that the Federal Government continues to struggle with its revenues, even beyond the first quarter. The Federal Government’s gross revenue was N458.42 billion in May, 48.8 percent short of the monthly budget estimate of N894.76 billion, according to the Central Bank of Nigeria (CBN)’s monthly report.
This has been the trend throughout this year. Actual revenues have flunked government targets plagued by huge slippages in non-oil revenues and low oil prices and production to a less extent now.
The country’s non-oil revenue, expected to relieve oil as the government’s dominant source of cash, came in at N1.13 trillion in the first five months of 2017.
That is half the size of a N2.2 trillion five-month target set by the government (federal and states) for 2017.
Various analysts, and more recently, the World Bank, have expressed concerns over Nigeria’s debt profile, citing the inadequacy of current revenues to sustain interest rate payments. At the recent IMF/World Bank Spring Meetings in Washington, Catherine Pattillo, Assistant Director and Head of Fiscal Policy and Surveillance Division of the IMF, pointed out that Nigeria’s interest payment to tax revenue has more than doubled to 66 percent.

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