President Muhammadu Buhari on Friday, July 10, 2020, signed the revised N10.8 trillion 2020 national budget into law. A breakdown of the spending plan showed that N4.9 trillion (45 per cent) was earmarked for recurrent expenditure, N422 billion (4 per cent) for statutory transfers, N2.4 trillion (22 per cent) for Capital expenditure and N2.9 trillion (27 per cent) for debt service.
N500 billion was earmarked as intervention funds to fight COVID-19 while the health sector got N186 billion. In order to stimulate real sector activity, the President hinted that all MDAs will be allocated 50 per cent of their capital allocation by July ending.
The budget was predicated on a crude oil price benchmark of USD25 a barrel (lower than USD57 per barrel earlier stipulated) and crude production 1.91 million barrels per day (lower than 2.18mbpd earlier stipulated) resulting in a budget deficit of N5.4 trillion.
In the monetary sector, the Central Bank of Nigeria (CBN) depository corporations survey showed a 0.06% month-on-month (m-o-m) rise in Broad Money Supply (M3 money) to N35.72 trillion in May 2020.
This resulted from a 9.44% increase in Net Foreign Assets (NFA) to N6.47 trillion which was partly offset by a 1.81% decrease in Net Domestic Assets (NDA) to N29.25 trillion. On domestic asset creation, the decrease in NDA was chiefly driven by a 0.55% m-o-m moderation in Net Domestic Credit (NDC) to N38.88 trillion.
Further breakdown of the NDC showed a 7.43% m-o-m decline in Credit to the Government to N9.65 trillion; however, Credit to the Private sector rose by 1.95% rise to N29.23 trillion. On the liabilities side, the 0.06% m-o-m increase in M3 Money was driven by the 2.29% m-o-m increase in M2 Money to N32.49 trillion but was partly offset by a 17.95% fall in treasury bills held by money holding sector to N3.23 trillion.
The increase in M2 was propelled by a 6.90% rise in Narrow Money (M1) to N12.39 trillion (of which Demand Deposits increased by 7.52% to N10.41 trillion, and currency outside banks, rose by 3.75% to N1.98 trillion), but softened by a 0.36% fall in Quasi Money (near maturing short term financial instruments) to N20.10 trillion.
Reserve Money (Base Money) further rose m-o-m by 5.86% to N12.97 trillion as Bank reserves increased m-o-m by 6.76% to N10.62 trillion, accompanied by a 1.99% rise in currency in circulation to N2.35 trillion.
On the global scene, US crude oil input to refineries increased week-on-week by 2.28% to 14.35 mb/d as at July 3, 2020 (but 21.53% lower than 17.44 mb/d recorded in July 5, 2019), pushing refinery capacity utilization to 77.5% from 75.5% recorded in the preceding week (which was lower than 94.7% recorded as at July 5, 2019).
However, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose w-o-w by 1.06% to 539.18 million barrels (and higher by 17.47% from 458.99 million barrels as at July 5, 2019) – suggestive of increased production.
Hence, WTI crude fell by 2.53% to USD39.62 a barrel even as Brent crude moderated by 1.07% to USD42.35 a barrel; also Bonny Light crude moderated by 0.30% to USD42.68 a barrel as at Thursday, July 9, 2020.
The approved 2020 budget crude oil price and production assumptions appear apt given current global economic realities – demand and supply shocks in the global crude oil market. Hence, we expect increased debt financing by the Federal Government amid risk of missing its crude oil-dependent revenue target.
Although the private sector should witness increased access to credit (amid ongoing expansionary monetary policies), we expect to see a tendency for the public sector to crowd out the private sector (with the possibility of increased borrowing rates – although to subdued by significant financial system liquidity) amid plans by the Federal Government to finance its fiscal deficit via increased domestic borrowings.