By Chinwendu Obienyi
As the fiscal operations of the Federal Government continued to be constrained by the lingering effect of COVID-19 pandemic on oil prices amid subdued economic activities, economic experts have said this would require increased level of borrowings over 2021.
Analysts at Cordros Capital in their weekly assessment of the nation’s economic activities last week believe that indeed the government needed some level of borrowing to sustain its fiscal operations.
According to the third quarter (Q3) 2020 economic report of the Central Bank of Nigeria (CBN), the retained revenue of the government declined by 35.7 per cent year-on-year (y/y) to N842.09 billion. On quarter-on-quarter (q/q) basis, however, it grew marginally by 4.7 per cent (q/q) with analysts stating that this was due to the relaxation of the COVID-19 lockdown measures which translated to improvement in economic activities during the review period.
“Juxtaposing the provisional expenditure of N2.13 trillion with the retained revenue in the quarter, the fiscal operations of the FGN resulted in an estimated deficit of N1.29 trillion. With economic activities and oil prices still below pre-pandemic levels amid compliance with OPEC production cuts, we expect revenue from both non-oil and oil sources to remain challenged. “At a time the government is spending its way out of the economic recession, the resulting effect would be widening in fiscal deficits which will require increased levels of borrowings over 2021”, they said.
The analysts further noted that with the recently passed budget of N13.59 trillion by the National Assembly, the total estimated deficit might print at N5.60 trillion based on projected revenue of N7.99 trillion.
According to the NASS, the increase of N505 billion from the proposed figure of the budget (N13.08 trillion)was necessitated by the need to upscale the National Social Investment Programme (NSIP) with N365 billion and a discovered under-projection of revenue by N100 billion. “We highlight that this new estimate comprises N5.64 trillion for recurrent (non-debt) expenditure; N4.13 trillion for capital expenditure; N3.32 trillion for debt service, and N496.53 billion as statutory transfers.
“If assented to by the President, this would put the total estimated budget deficit (including GOEs and project-tied loans) at NGN5.60 trillion based on projected revenue of N7.99 trillion (inclusive of the N100 billion under-projection). Based on the revised budget, our base case scenario shows that the budget deficit will now print NGN6.78 trillion (previously: N6.37 trillion) which is 21.1 per cent ahead of the revised budget”, they said.