FG loses N797b projected revenue in three months

• It’s bad omen for 2018 budget, deficit, debt forecast, say experts
• Banks opt for less earning to sterilise N5.6tr at CBN

The Federal Government has lost about N796.77 billion from its revenue projections in the third quarter of 2018, according to data compiled by The Guardian.The development shows that the revenue generation challenges of the Federal Government and their effect on budget implementation have not abated. It also raises concerns that the 2018 budget financing might suffer huge deficits with attendant borrowing costs and that the country might even remain in deficit until 2023.

An economic report analysis by the Central Bank of Nigeria (CBN) showed that the N2.52 trillion revenue collected in the third quarter of 2018 was lower than the proportionate quarterly budget estimate of N3.32 trillion, being a N796.77 billion shortfall.

While the decline has been attributed to a shortfall in both oil and non-oil revenue components in the review period by the CBN, the realised amount rose above the receipts in the preceding quarter by 8.9 per cent.

Gross oil receipt, at N1.39 trillion or 55.2 per cent of the total revenue, was below the proportionate quarterly budget estimate by 27.4 per cent, which also fell marginally below the receipts in the second quarter of 2018 by 0.3 per cent.

“Despite the increase in crude oil price, oil revenue declined relative to the proportionate budget, owing to shortfalls in crude oil production and exports, arising from leakages and shut-ins/shut-downs at some terminals of the Nigeria National Petroleum Corporation,” the CBN said.

But the chief executive officer of Cowry Asset Management Limited, Johnson Chukwu, said the implication of the development is a direct ballooning of the debt profile and further pressure on debt-to-revenue ratio and optional implementation of capital expenditure.

According to him, in a shortfall, it is the capital expenditure that takes the negative impact because recurrent expenditures will be considered uppermost on the priority list, going by the Nigerian system.

“It is an indication that all debt parameters will rise because government will surely borrow. Already, the country is spending about 69 per cent of its revenue on debt-related obligations. Government needs to scrutinise its expenditures because any complaint about deficit, now that the oil price and production are positive, and huge claims of tax revenues, will be subject to questioning,” Chukwu said.

The head of research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, said the development is a reaffirmation of the ongoing fiscal challenges in the country, stressing the need for real diversification.“Oil is no longer helping. There is a report about production shortage and the quantity produced has no ready-made buyer in the international market. The implication is that government will continue borrowing. Surely, debt profile and service bills will rise,” he said.

Meanwhile, deposit money banks in the country have opted to earn a paltry sum of N1.99 billion for depositing N5.56 trillion with the CBN between July and September, instead of lending the money to the real sector for more returns.Consequently, banks’ credit to the domestic economy (N19.3 trillion) at the end of the review period showed an increase of just one per cent above the level recorded at the end of the second quarter.

The development, which is a tacit admittance of high-risk assessments inherent in the real sector environment by banks, was also manifest in the lost position in the latest Ease of Doing Business ranking.On the other hand, the banks, at the same period paid about N3.1 billion to the CBN for borrowing as little as N956.64 billion, compared with N5.56 trillion lent to the apex bank.

Under the asymmetric corridor rule, currently at +200/-500 basis points, banks will pay an interest rate of 16 per cent for borrowing (Monetary Policy Rate of 14 per cent and +200 basis points), while if they deposit at the CBN, they will earn nine per cent interest rate (Monetary Policy Rate of 14 per cent less 500 basis points).

Specifically, the banks accessed the CBN’s Standing Lending Facilities window to square up their liquidity positions, which averaged N19.13 billion for 50 transaction days in the quarter.However, the borrowings from the window in the period under review at N956.64 billion represent a decrease, compared with N3.960.24 billion recorded in the second quarter.

The Standing Deposit Facility granted during the review period, at N5.57 billion, with daily average of N91.09 trillion, was also lower, when compared with N5.99 trillion in the second quarter of 2018.Renowned economist, Bismarck Rewane, said the development is a mix of political inducement, earnings considerations and risk in business environment.

“It is evidence of liquidity in the system as well as lack of enthusiasm for lending. It is a sign of risk assessment and aversion. They don’t want to take risk at this time and make provision for it. Remember, the International Financial Reporting Standard has kicked in. Of course, the impact of the cautious lending will be directly on growth and productivity. But banks will want to maximise their opportunities and reduce risks,” he said.