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Economy | Budget and Plans

Budget Performance – Debt Service to Revenue Ratio Drops to 83.24% as at August 2022

Oct 25, 2022   •   by CSL Research   •   Source: CSL   •   eye-icon 272 views

Based on the review of the 2022 budget as contained in the recently updated 2023 Federal Government of Nigeria (FGN) Budget proposal, the Federal Government’s Debt Service to Revenue Ratio dropped to 83.24% in August 2022 from 118.90% in April 2022. The report noted that the aggregate Federal Government Revenue (January to August 2022) stood at N4.23trn, 36.3% (N2.41trn) short of the prorated budget of N6.65trn for the period. Of the total, Oil Revenue contributed N395.06bn, 72.9% (N1.07trn) short of the prorated (January to August 2022) budget of N1.46trn while non-oil tax Revenue contributed N1.55bn, 2.9% (N44.31bn) higher than the prorated (January to August 2022) budget of N1.51trn. 

 

A breakdown of the non-oil tax Revenues showed Corporate Income Tax (CIT) and Value Added Tax (VAT) collections were N826.27bn and N210.36bn, representing 136.3% and 99.6% of their respective targets of N606.2bn and N211.13bn. Other Revenues which amounted to N2.19trn, also fell 72.9% (N1.36trn) short of the prorated (January to August 2022) budget of N3.55trn. Other Revenue was largely driven by Independent Revenue (Dividend, Interests, Rental Income, etc) which generated N866.16bn, and N566.58bn was generated in Retained Revenue from Government-Owned Entities (GOEs). 

 

On the expenditure side, the Federal Government spent a total of N9.56trn (January to August), 17.2% (N1.98trn) lower than the prorated (January to August) budget of N11.55trn. Total Recurrent Expenditure came to N7.24trn, constituting 75.73% of total expenditure while capital expenditure came to N1.78trn, 18.62% of aggregate expenditure. A breakdown of recurrent expenditure showed that N2.89trn (or 39.92%) was spent on personnel cost and N431.63bn (or 5.96%) was spent on overhead. Debt service shot up to N3.52trn, 32.9% higher than the prorated (January to August 2022) budget of N2.65trn. Interest on ways & means came to N1.03trn while domestic and foreign debt service gulped N1.73trn and N764.25bn respectively. Overall, budget deficit as of August 2022 was N5.33trn, N430.82bn higher than the prorated budget of N4.9trn. This was financed by N4.82trn from domestic borrowing (including CBN’s ways & means) and N510.21bn from foreign borrowings. 

 

We expect an improvement in the oil production numbers going by the recent positive developments in curbing pipeline vandalism and crude oil theft. The 17.64% expenditure budget underperformance in 2018 (pre-election year) and the current 17.2% underperformance as of August 2022 aligns with our full year expenditure forecast. Election campaigns and yuletide season activities are expected to slow down capital expenditures. Overall, we think the improvement in debt service to revenue from 118.9% to 83.24% may be sustainable in the short term given the expected improvement in oil revenue. On the other hand, the prevailing upward trend in interest rates will continue to exert pressure on the Federal Government’s borrowing cost

 

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