As huge revenue shortfall dogs the 2018 budget, it has been revealed why the Federal Government needs more loans to fund the capital projects.
According to Jimi Ogbobine, Senior Analyst at Agusto & Co, funding capital projects requires higher than planned borrowing with adverse implications for interest rates and interest costs for the economy. For this reason, he explained that the Federal Government is expected to take more loans if its plan to fund infrastructure is to be realised.
His words: “The Federal Government’s borrowing to fund infrastructure is likely to be between N1.2 trillion to N1.6 trillion. The implementation is unlikely to start before the second quarter and revenue is likely to be lower than planned.
Actual funding from asset restructuring, recoveries and others may be substantially lower than the planned level of N2 trillion. Therefore, fully funding the capital budget will mean higher than planned borrowing with adverse implications for interest rates and interest costs.”
And true to Ogbobine’s forecast, the Federal Government was reported to have recently recorded a huge revenue shortfall when compared to budget estimates.
According to the Economic Report for August 2018, released last Thursday by the Central Bank of Nigeria (CBN), the estimated federally collected revenue (gross) took a dip in August as against the preceding month.
The report stated: “At N745.52 billion, estimated federally collected revenue (gross) in August 2018 fell below both the 2018 monthly budget estimate of N1.1 trillion and the receipt in the preceding month of N947.62 billion by 32.7 and 21.3 per cent respectively.
The decline in the monthly budget estimate was attributed to a shortfall in both oil and non-oil revenues. Oil receipts at N403.59 billion, or 54.1 per cent of total revenue, was below the monthly budget estimate of N640.21 billion by 37 per cent, as well as below the preceding month’s receipt of N513.54 billion by 21.4 per cent.
The fall in oil revenue relative to the monthly budget estimate was attributed to the drop in crude oil production arising from repairs and maintenance of oil facilities at various NNPC terminals.”
Speaking during the Finance Correspondents Association of Nigeria (FICAN) 2018 Annual Workshop in Lagos last month, Ogbobine had observed that the obligatory spending of the Federal Government was still more than 100 per cent of revenues, hence, there is no free cash flow for investment in infrastructure.
He stated: “Every kobo of infrastructure spending is financed by debt constrains ability to fully fund budgeted amounts. Debt as percentage of revenue is significantly higher than the median, of 200 per cent, for countries in Middle East & Africa. Federal Government plans to partly finance 2018 capital expenditure with proceeds of asset sales.”
The National Bureau of Statistics (NBS), recently put the nation’s foreign debt at $22.08 billion by June end. This represents a 17 per cent rise over the $18.9 billion recorded at the end of 2017. The breakdown shows that foreign borrowings amounting to $10.88 billion were from multilateral agencies; $274.98 million from bilateral agencies and another $2.12 billion bilateral from the Exim Bank of China, JICA, India and KFW, while $8.80 billion was commercial debt.
Recall that the Debt Management Office (DMO), last month, put the domestic debt stock of the 36 states and the Federal Capital Territory (FCT) at N3.5 trillion as at the first half of the year, which was 6 per cent over the N3.3 trillion recorded at the end of December 2017. And citing the growing level of sovereign debts, CBN warned last week that the economy might slip back into recession.
According to its Governor, Godwin Emefiele, “there was a fresh threat of recession as the economy recorded growth rate of 1.95 per cent and 1.5 per cent during the first and the second quarters of this year respectively.
The slowdown emanated from the oil sector, with strong linkages to employment and growth, late implementation of the 2018 budget, weakening demand and consumer spending, rising contractor debts, and low minimum wage were some of the risks to output growth.
Others are the impact of flooding on agricultural output, continued security challenges in the North-east and North-central zones, and growing level of sovereign debts.”
Ogbobine, however, predicted lower deficit than planned largely due to a low implementation of the capital budget this year.
He explained that despite recent contraction in Gross Domestic Product (GDP) growth, Nigeria remains Africa’s largest economy, following rebased GDP figures in 2013.
“Still a viable economy based on long-run projections. Significant issues with political stability, terrorism and scattered violence in certain areas. Heavily dependent on crude oil exports and facing severe economic challenges with the current global oil market shocks, terrorism threats, and attacks on key economic interests,” he said.
Continuing, he stated that average oil price for 2018 is likely to be firmer driven largely by Oil Producing and Exporting Countries (OPEC) production cuts, stronger growth, high but declining inventories and political tensions in the Middle East.
“A lot is still contingent on ability to produce and evacuate oil from the Niger Delta. Demand management of imports will continue. If Nigeria is able to produce and evacuate crude, it will build reserves but some of the reserves will be used to intervene in the Nigerian Autonomous Foreign Exchange (NAFEX) market to keep exchange rates in this market at near current levels.”