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Renewed Hope: the 2024 FGN Budget – Coronation Economic Note

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The 2024 FGN Budget, titled “Budget of Renewed Hope,” was signed by President Bola Ahmed Tinubu on 02 January’24. There were a few revisions made.

The aggregate expenditure is estimated at N28.7trn which is 11.9% or N1.2trn higher than the initially proposed N27.5trn. This figure is 15.9% higher than the 2023 FGN budget of N24.82trn.

Notably, the allocation to capital expenditure in the approved 2024 budget rose by 13.8% to N9.9trn, accounting for 34.5% of the total expenditure, compared to the initial proposed figure of N8.7trn. The increased capital spending aligns with the FGN’s intent to reduce the country’s infrastructure deficit gap. We note that the 2024 budget estimates point towards a fiscal deficit of N9.1trn (approximately 3.88% of the 2024 estimated nominal GDP), which is considerably lower than N13.8trn estimated in the 2023 FGN budget.

The projected fiscal expenditure also includes an increase in statutory transfer to N1.7trn from the initial N1.3trn in the proposed budget However, non-debt recurrent expenditure declined by – 15.5% to N8.7trn from the initially proposed N10.2trn. However, the debt service estimate remained unchanged at N8.2trn.

Furthermore, there was a slight modification in the assumptions underlying the budget. The exchange rate was revised upward to N800/USD from N750/USD. However, other assumptions remained unchanged (oil price benchmark of USD77.9/b, oil production of 1.78mbpd, inflation rate of 21.4%, and GDP growth rate of 3.76% y/y).

There were notable budgetary reallocations, for example, the National Judicial Council received a substantial increase by +107% from N165bn to N341.6bn. Similarly, the allocation to the National Assembly increased by 74.23% to N344.8bn from N197.9bn.

This marks the highest allocation to the National Assembly. Other budgetary reallocations include Niger-Delta Development Commission: N338.9bn (previously N324.8bn), Universal Basic Education Commission: N263billion (previously N251.4bn), Public Complaints Commission: N14.4bn (previously N13.6bn), Northeast Development Commission: N131.8bn (previously N126.9bn), Basic Healthcare Provision Fund: N131.5bn (previously N125.7bn) National Agency for Science and Engineering
Infrastructure: N131.5bn (previously N125.7bn).

The estimated revenue to fund the 2024 budget was revised upward to N19.6trn, 78.2% higher than the 2023 provision of N11trn. The breakdown of this revenue estimate shows that N9.2trn
(46.9%) is expected from oil-related sources while the balance of N10.4trn (53.1%) is expected
from non-oil sources.

Overall, the revenue projections point towards expectations of improved revenue inflow, on the back of the removal of PMS subsidy, fx depreciation following the fx liberalization policy, and increased collection of non-oil taxes.

In our view, achieving the proposed revenue target in 2024 would require deliberate efforts towards tackling the challenges in the oil sector. Average oil production from January – November ‘23 was 1.46mbpd. This is below the FGN 2023 oil production target of 1.72mbpd. In 2024, we expect oil production to range between 1.4 -1.6mbpd, still below the FGN’s 2024 oil production target of 1.78mbpd.

On the other hand, it is worth highlighting that actual non-oil revenue has exceeded FGN’s target by an average of 9.4% since FY2021. Additionally, as at end-September ’23, we note an overperformance of non-oil revenue (N2.5trn exceeding the prorated target of N1.8trn). We expect the FGN to increase its tax mobilization initiatives and further enhance independent revenue generation and collection efforts, especially from government-owned enterprises (GOEs). The proposed fiscal deficit of N9.1trn is expected to be financed by new borrowings totaling c.N7.8trn (domestic: c.N6.0trn, external: c.N1.7trn). Other sources of deficit financing include privatization proceeds of c.N298.4bn and drawdowns on bilateral/multilateral projects/programs of c.N941.1bn.

Regarding ways and means advances from the CBN, we note the senate’s approval to securitize c.N7.3trn of the ways and means advances to a 40-year bond at 5% interest. In early 2023, N23trn was securitized to a 40-year bond at 9% interest. This brings the total amount of securitized ways and means advances to N30.3trn. Although securitization would reduce the cost of debt service and enhance debt transparency, it will concurrently elevate the total public debt stock to approximately N95.2trn. This represents 47.7% of the 2022 nominal GDP, surpassing the debt management office’s (DMO) debt-toGDP ratio target of 40% set for the period of 2020-2023. However, we understand that there are plans to revise Nigeria’s debt-to-GDP ratio target.

The revenue targets are laudable and indeed optimistic. However, we must emphasize that without a significant acceleration of revenue-based fiscal consolidation efforts, the FGN may fall short of meeting its revenue targets. A scenario that could potentially have negative implications for debt sustainability. However, it is important to recognize that challenges present opportunities for strategic adjustment and enhanced fiscal policies. Encouraging proactive measures and innovative strategies to boost revenue can position the FGN for greater fiscal resilience and contribute to achieving its financial goals for sustainable development.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Economy

President Tinubu Approves Concrete Redesign for Abuja-Kaduna Road Amid Contract Termination

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The Federal Government has announced plans to address the difficulties faced by road users on the Abuja-Kaduna-Zaria-Kano road with the redesign of the dual carriageway.

This announcement was made by the Minister of Works, David Umahi via a statement on Wednesday.

The Ministry revealed that the 127 kilometers project has been approved by President Bola Tinubu.

This development comes two days after the Ministry of Works announced the termination of its contract with Julius Berger for the Section I (Abuja-Kaduna) of the Abuja-Kaduna-Zaria-Kano Dual Carriageway project in FCT, Kaduna, and Kano States.

Investors King understands that the contract for the rehabilitation of the road was awarded to Messrs Julius Berger (Nig.) Plc on December 20, 2017.

The project, initially valued at N155.7 billion, with a 36-month completion period was further categorized into three sections.

However, only Section II (Kaduna-Zaria) has been completed and partially handed over.

Section III (Zaria-Kano) is partially finished while Section I remains in a severely deteriorated state.

A statement from the Ministry explained that the decision to terminate the contract with Berger was based on non-compliance with reviewed cost, scope, and terms, stoppage of work, and refusal to remobilise to site.

The ministry on Wednesday, November 6, confirmed that Section I has been redesigned and re-scoped.

The statement reads, “The President, His Excellency, Bola Ahmed Tinubu, GCFR has approved that the remaining 127 kilometres of the Rehabilitation of Abuja – Kaduna – Zaria – Kano Dual Carriageway, Section I (Abuja – Kaduna) be redesigned using continuously reinforced concrete pavement (CRCP) instead of the present asphaltic one.”  

“The contract, divided into three (3) sections, was awarded to Messrs Julius Berger (Nig.) PLC on 20th December 2017 at an initial sum of N155, 748,178,425.50 billion (one hundred and fifty-five billion, seven hundred and forty-eight million, one hundred and seventy-eight thousand, four hundred and twenty-five naira, fifty kobo) with a completion period of thirty-six (36) months.” 

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Tax Expert Warns Tinubu: VAT, PAYE Hikes Will Deepen Hardship for Nigerians

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Company Income Tax (CIT) - Investors King

Due to Nigeria’s economic situation, tax expert Adebisi Oderinde has urged President Bola Ahmed Tinubu to halt plans to increase the VAT and Pay-As-You-Earn (PAYE) tax rates.

Oderinde, who is also the CEO of AOC-Adebisi Oderinde & Co, made the statement during the inauguration of the company’s Head Office in the Kara area of Ogun State.

He said the country’s economic conditions are challenging and particularly unfavorable for SMEs and warned that implementing tax reform could destabilize many small businesses as inflation has already eroded purchasing power in Nigeria.

With over 28 years of experience as a tax consultant, Oderinde noted that new tax reforms would likely worsen hardship across the country.

“My advice is to make hay while the sun shines, as the journey of a thousand miles begins with a single step, and slow and steady wins the race. The country is hard! As a tax practitioner, I continue to pray for our President, but he must heed the advice of elders, especially when it concerns tax reform,” he said.

“This is not the right time to reform any tax, nor to adjust rates. Nigerians’ purchasing power is very low. While some may think of VAT reform as beneficial, it would have a negative impact, especially on Lagos State. One part of the reform aims to cancel the consumption tax, which would hit Lagos hard, as the state earns more from consumption tax than any other state in the federation,” he added.

Oderinde further advised northern Nigeria not to support the proposed policy, warning it could disproportionately affect the region.

“They also want to increase PAYE, and recent data from the NBS in 2023 shows that the total IGR from the 36 states plus the FCT is about N2.4tn, with PAYE accounting for about 63%. If PAYE is raised, it will impact many states significantly. Instead of focusing on VAT, the northern states should consider that an increase in PAYE would affect them even more than VAT,” he explained.

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Economy

Power Restored Hours After Lastest Grid Collapse

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Electricity - Investors King

Electricity has been restored in some parts of the states that were hitherto affected by the nation’s power grid collapse.

Investors King gathered that some states including Lagos, Osun, Federal Capital Territory among others now have light.

Recall that the Transmission Company of Nigeria (TCN) had on Tuesday announced the latest National Grid collapse.

Checks by Investors King, however, revealed that the last disruption was the tenth time Nigeria would be experiencing total blackout due to grid collapse in about nine months in 2024 alone.

The situation has been raising concerns from Nigerians and other stakeholders even as others alleged that the collapse has led to inferno in people’s homes among other property destruction.

The General Manager of TCN Public Affairs, Ndidi Mbah, had assured members of the public that the grid collapse which occurred at 1:52 pm on November 5 would be speedily fixed.

The GM revealed that the grid collapse was caused by line and generator trippings, adding that efforts were on to rectify it.

Mbah had disclosed how the national grid experienced a partial disturbance due to a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Each time the disruption through citizens into darkness, businesses are affected as many Nigerians task the Federal Government to tackle the menace.

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