Last week Tuesday, President Buhari approved the 2023 budget, which marks the final budget of his administration. A pattern has emerged over the years of the executive sending in the budget proposals to the national assembly, while the legislative arm inserts additional expenditure items. The budget for 2023 was no different. The approved budget comprised a planned expenditure of NGN21.8trn, an increase of NGN1.3trn over the initial budget proposals sent by the executive to the national assembly. It is also 20% higher than the 2022 budget (including the supplementary). The budget projects aggregate FGN revenues of c.NGN10.5trn, compared with the NGN10.0trn contained in the initial 2023 budget proposal.
The expenditure and revenue forecasts imply a fiscal deficit of NGN11.3trn, which is higher than the NGN10.8trn and NGN8.2trn anticipated in the initial budget proposal for 2023, and the 2022 budget respectively.
The fiscal deficit is expected to be financed mainly by borrowings of NGN8.8trn, of which NGN7.0trn is to be sourced from domestic sources.
Other funding sources include bilateral/multilateral loans and proceeds from asset privatisation of NGN1.8trn and NGN206bn respectively, and NGN553bn from other sources such as spectrum fees earned from auctions to telecommunications firms.
In terms of the revenue assumptions, excluding the oil price benchmark which was reviewed upward to USD75/barrel from USD70/barrel in the initial budget proposal, most of the key variables driving the revenue forecasts were unchanged.
Although the oil price benchmark of USD75/barrel looks to be sufficiently conservative due to the outlook for the oil market, we find the oil production target of 1.69 million barrels per day (mbpd) a bit optimistic given the actual average production of 1.2mbpd attained as at Nov ’22.
However, a potential upside risk is the expected gains from oil production due to the recent enhancement of security around oil production infrastructure in the Niger-delta.
Regardless, we believe the expected revenue of NGN2.2trn from crude oil proceeds is optimistic. The FGN’s share of oil revenue for 11M ’22 amounted to a paltry NGN587bn, which represents a performance of just 35.7% of the pro-rata budget target.
Also, the average exchange rate of NGN435.6 is unrealistic given the current NAFEX rate of NGN461.7.
The FGN also has bullish revenue expectations of NGN3.9trn from government-owned enterprises (GOEs).
Using 2022 as a read-across, GOEs revenue totalled NGN639bn for the eleven-month period to Nov ’22, representing a performance of just 49% of the pro-rata budget target.
Moving to expenditure, the planned expenditure ofNGN21.8trn is comprised of NGN8.3trn in non-debt recurrent costs, capital expenditure of NGN6.5trn, and debt service cost of NGN6.6trn (including sinking fund).
The balance consists of expenditures items related to special intervention funds and other items. The fact that the implied fiscal deficit of NGN11.3trn is considerably higher than the projected revenue of NGN10.5trn shows the dire state of the government’s finances. The total debt service cost is expected to amount to almost 63% of the entire budget