FBNQuest: Soundness of non-oil revenue forecasts

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The presidency last week submitted the 2018-2020 Medium Term Expenditure Framework and Fiscal Strategy Paper to the National Assembly. Total FGN revenue is projected to rise from N5.08trn in this year’s budget to N5.65trn in 2018. The outturn of N2.43trn in H1 2017, according to the Budget Office of the Federation document, is not far short of the projection on a pro rata basis. In days to come, we will comment on the expenditure and financing projections.

The outturn for FGN revenue for H1 2017 looks better than the narrative from official sources might suggest. Over the six months, oil and non-revenue collections were N100bn and N340bn behind projections respectively, the latter due largely to a dire record on companies’ income tax. The aggregate figure for FGN revenue was boosted by refunds, exchange-rate gains and an unexplained one-off N530bn transfer to the Consolidated Revenue Fund.

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Turning to the underlying assumptions for 2018, the framework has average oil production of 2.30 mbpd (vs 2.20 mbpd in 2017), an average oil export price of US$45.0/b (vs US$44.5/b) and an unchanged exchange rate of N305 per USD.

We have no issue with the assumptions. The budget planners have run with their familiar combination of a figure for output that may look a little optimistic and a conservative projection for the price. On the exchange rate, our view is that the authorities will maintain multiple currency practices at least until end-2018.

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In view of the weak performance YTD, we can see why non-oil revenue is forecast as broadly flat next year (N1.39trn vs N1.37trn). The framework assumes an unchanged standard rate of VAT but leaves open the possibility of a rise in the medium term. It has high hopes of efficiency gains.

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It has FGN revenue from fines, recoveries and the tax amnesty combined at N600bn in 2018, compared with N570bn in the current year’s budget. This is a grey area in which analysts would appreciate rather more colour. We know that recoveries and fines are regularly challenged in the courts, and that the monies cannot immediately be “banked”. We would, however, like to be told the basis of the projected tax amnesty proceeds of just N90bn.

We hear criticism that the presidency has submitted the documents to the assembly only four months after the sign-off of the 2017 budget. There are set procedures and the FGN should not be faulted for following them in the hope that the 2018 budget might be approved at, or at least nearer, the start of the new calendar year.

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