October 10, 2019/Cordros Report
Following the formation of the new economic advisory council, optimism about the economic and fiscal prospects of the country has been elevated. Thus, after due consultation with the team members and all relevant stakeholders, the 2020 budget was prepared in line with the Medium-Term Expenditure Framework (2020–2022) framework and presented to the House of Assembly on the 8th of October, 2020, the earlier in 10 years.
Optimistic Revenue Assumptions
To start with, expected oil revenue was set at NGN2.60 trillion – 32.4% of the total revenue –, with the underlying assumption of crude oil price of USD57.00 per barrel and production of 2.18 million barrels per day. Given weaker global economic growth expectations, amidst heightened trade tensions, the supply and demand dynamics of crude oil are currently at disequilibrium, with supply running faster than demand, which has caused prices to trend lower.
Recurrent Expenditure Dominates Spending
Amidst the infrastructure deficit in Nigeria and low Foreign Direct Investment (FDI) into Nigeria, the case for increased capital expenditure should be stronger. However, the reverse is the case here, as the proposed capital expenditure of NGN2.14 trillion is 26.9% below the 2019 budget. Similarly, average capital expenditure-to-total expenditure over the last 10 years is 19.5%.
Fiscal Reliance on Ways & Means Will be extended in 2020
Whilst the breakdown of how the government intends to finance its deficit has not yet been disclosed, we expect the usual trend of tripartite financing (Domestic, foreign and CBN ways & means). The level of domestic borrowings has been lower than expected in recent years, as the government has utilized the CBN ways and means facility. We highlight a significant jump (+ 29.6% YTD to NGN7.28 trillion) in August 2019, which signals that the government has continued that mean, in a bid to keep a lid on financing cost.