FG’s fiscal deficit to reach N14.26 trillion this year, analysts project

Cordros Capital anticipates the federal government’s fiscal deficit to reach N14.26 trillion this year, translating to 5.37 per cent of the country’s gross domestic product (GDP).

A fiscal deficit is the difference between government’s total expenditure and its total revenue during a specific period. It represents the extent to which a government spends more than it earns.

The projection by Cordros is about 50 per cent of the projected fiscal deficit captured in the 2024 budget.

The government had planned to finance the deficit with additional borrowings and the sale of government enterprises. However, there has been rising doubt on the ease at which the government could plug the hole owing to the drying debt market.

According to the analysts, the federal government’s retained revenue would underperform its budgeted estimate (N15.95 trillion) in 2024, due to the shortfall in oil revenue.

In addition, they also predicted that higher debt service would push up FG’s expenditure given the hike in interest rates.

“Overall, our baseline expectation is that the fiscal deficit will print N14.26 trillion or 5.37 per cent of GDP (including GOEs) in 2024.

“Recall that the federal government’s (FG) fiscal deficit widened by 52.85 per cent to N12.87 trillion (5.6 per cent of GDP) in 2023 Full Year (FY). In 2022, it was N8.42 trillion or 4.22 per cent of GDP as a higher fiscal expenditure (40.7 per cent to N18.84 trillion) outweighed increases in retained revenue (19.88 per cent to N5.97 trillion),” it stated.

The analysts said the increase in fiscal revenue was primarily driven by revenue generated independently and exchange rate gains.

They pointed out that the increase in aggregate expenditure was driven by higher capital (130.69 per cent to N4.36 trillion) and recurrent (25.83 per cent to N11.5 trillion) expenditures.

“Nevertheless, we highlight that the 2023 full-year actual deficit was 6.6 per cent lower than the budgeted deficit of N13.78 trillion as aggregate expenditure was lower than the approved budget expenditure of N24.82 trillion amid lower-than-budgeted retained revenue of N8.63 trillion,” they stated.

Cordros Capital also predicted that the currency depreciation accompanying the Foreign exchange market liberalisation would continue to support oil revenue in naira terms.

However, they pointed out that relatively lower crude oil production may likely ensure oil revenue remains underwhelming relative to pre-pandemic levels.

At the same time, they maintained that non-oil revenue will continue to support aggregate revenue, given the sustained improvement in economic activities and the impact of the provisions of the 2023 Finance Act.