…As less optimism greets Fitch’s outlook
With debt service to revenue at 72.2 per cent between January and May 2020, the Federal Government’s fiscal position remains under enormous pressure with this likely to impact on its recent projected revenue target of N7.9 trillion.
According to analysts, this would be a more prominent debt sustainability risk than Nigeria’s low debt to GDP ratio of around 20.4 per cent, since revenue collection has been underwhelming and below peers at less than 10 per cent of Gross Domestic Product (GDP).
This is coming after the Federal Executive Council (FEC) presided over by President Muhammadu Buhari, recently approved the N13.08 trillion budget proposal for the 2021 fiscal year, representing a 24.6 per cent increase on the 2020 revised budget.
Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, had earlier said the budget estimate was made up of N2.08 trillion for capital expenditure, representing about 29 per cent of the total budget.
She noted that the budget proposal was predicated on the N379 exchange rate to the dollar, at oil benchmark of $40 per barrel, oil production volume of 1.86 million per day, including 400,000 barrels of condensate, GDP growth of 3 per cent and 11.95 per cent inflation rate.
The minister also said the budget would run on a N4.48 trillion deficit, while putting the revenue target in the fiscal year at N7.9 trillion.
Meanwhile in a related development, Fitch Ratings has revised Nigeria’s economic outlook to stable following reduced uncertainties, stable oil prices and the reopening of the economy. The rating agency had in April downgraded Nigeria’s long-term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ with a negative outlook due to COVID-19 pressures.
However, its recent rating stance was largely influenced by Central Bank of Nigeria (CBN’s) management of external liquidity pressures through partial exchange rate adjustment, capital controls, FX restrictions and the rise in external reserves following the disbursement of IMF’s $3.4billion Rapid Financing Instrument (RFI), while citing the persistence of external vulnerabilities due to an overvaluation of the naira and a large FX demand backlog.
Speaking in an emailed note to Daily Sun, Cordros Capital, an investment and research-based firm, said, although the proposed revenue was greater than the N6.15 trillion stated in the Medium Term Expenditure Framework (MTEF), it suspects that the variance stems from the upward adjustment in the exchange rate assumption (MTEF: N360/$) which translates to higher estimated naira receipts from oil sales.