The passage of the 2018 budget by the National Assembly on Wednesday, subject to the sign-off by the head of state, was notable for the increase in total FGN spending to N9.12trn (US$29.8bn) from the figure of N8.61trn submitted by the president in early November. Capital items account for N440bn of the rise of N510bn in total spending. The assembly justified the increase on the basis of the healthier international crude market, and lifted the oil price threshold to US$51/b from US$45/b in the original proposals. This is a well-trodden step in the annual tussle over the budget between the legislature and the executive.
- Recurrent spending and debt service (including the sinking fund) are broadly unchanged from November at N3.51trn and N2.20trn respectively. Talk of a large hike in the national minimum wage therefore appears to have evaporated but could be revived in a supplementary budget.
- Domestic payments account for N1.76trn of total debt service. We would be curious to know what interest rate assumptions have been made.
- Capital spending of N2.87trn will test the absorptive capacity of receiving departments and the FGN’s administrative prowess. It maintains the expansionary fiscal stance (Good Morning Nigeria, 15 May 2018).
- Implied total FGN revenue of N7.17trn appears to have been adjusted by the assembly solely on the basis of the new threshold. We expect that, as in recent years, the threshold will allow some wiggle room to compensate for the challenging average output assumption of 2.30mbpd. As for non-oil receipts, some boost must have been incorporated for the tax amnesty,
- The deficit of N1.96trn, equivalent to 1.73% of forecast GDP, marks a tightening from 2017 (budget and calendar years). Even without non-debt creating sources of financing such as asset sales and recoveries, this points to a lower funding target for the Debt Management Office and adds to the investment case for the fixed-income community.
- The assembly urged the presidency to submit a supplementary budget to cover fuel subsidies and to regularize the acquisition of military aircraft from the US. In early March, when the spot price of Bonny Light was hovering around US$65/b, the group managing director of the NNPC said that, allowing for daily consumption of 50 million litres including cross-border smuggling, the “under-recovery” was running at about N770m per day. The assembly’s suggestion may prove a sticking point with the executive.
- In the absence of an official statement, the figures in our note have been taken from the local media.
- Once again, we note the struggle to reconcile calendar year data with fluid budget years.