Fixes oil benchmark at $73.96; inflation 21.4%; GDP N236.3tr
The federal government plans to rebuild the economy over the next three years based on critical data just released in Abuja.
These include oil benchmark, oil production, exchange rate and inflation rate.
Government, according to the Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2024 to 2026, has set the oil benchmark price for the three years running from 2024 to 2026 at $73.96; $73.76; and $69.90 respectively.
These estimates indicate the assumed average price per barrel of oil that will be used to calculate revenue projections for the Nigerian economy.
The key parameters that will drive the medium-term revenue and expenditure framework for Nigeria are: Oil benchmark: 2024- $73.96; 2025- $73.76; 2026- $69.90. Oil Production (Mbps): 1.78; 1.80; 1.81. Exchange rate N/$: 700/$; 665.61/$; 669.79/$. Inflation: 21.40%; 20.30%; 18.60
Other parameters are: Non-oil GDP: Non-Oil GDP (N’bn): N223,989.2; N249,188.0; N278,251.7. Oil GDP (N’bn): in 2024-N12,316.0; 2025- N13,225.7; 2026-N14,272.0. Nominal GDP (N’bn): N236,305.2; N262,413.7; N292,523.7. GDP Growth Rate (%): 3.76; 4.22; 4.78. Imports: 32,453.5; 33,401.3; 34,515.4 and Nominal Consumption (N’bn): N163,227.8; N189,992.8; N218,594.2
The projected exchange rates for the Nigerian Naira (N) against the U.S. Dollar ($) are 700 Naira to 1 Dollar in 2024, 665.61 Naira to 1 Dollar in 2025, and 669.79 Naira to 1 Dollar in 2026. These rates reflect the assumed values used for currency conversion in economic calculations.
The figures provided represent key parameters for Nigeria’s medium-term revenue and expenditure framework. The oil benchmark reflects the expected price of oil in the years 2024, 2025, and 2026, which increases slightly in 2025 before decreasing in 2026. Oil production is expected to increase slightly over the three-year period.
The exchange rate is expected to fluctuate, decreasing significantly in 2025 before increasing slightly in 2026 while inflation is expected to decrease over the three-year period.
Non-oil GDP is expected to increase steadily, while oil GDP is expected to increase slightly. Nominal GDP which represent the estimated total value of goods and services consumed in the Nigerian economy is expected to increase steadily, with a growth rate of around 4% each year.
Imports, which are the estimated total value of goods and services imported into Nigeria, are expected to increase over the three-year period, while nominal consumption which represents the estimated total value of goods and services consumed in the Nigerian economy is projected to increase steadily.
These figures indicate that Nigeria’s economy is expected to maintain steady growth over the next few years, with some fluctuations in key parameters such as the exchange rate and oil benchmark. However, there may be continued challenges with inflation and a heavy reliance on oil as a primary source of revenue.
According to the document from the Budget Office of the Federation BoF “the assumptions underlying the 2024-2026 Medium-Term Expenditure Framework indicate that economic growth rate over the next three years would be higher than the modest rates recorded since the end of the recession in 2020.
“Accordingly, economic growth is projected to increase to 3.76%, 4.22% and 4.78% in 2024, 2025 and 2026, respectively, mainly due to strong political will to take tough decisions and implement necessary reforms.”
The document adds that “most of the growth in real GDP during the period will be driven by the anticipated increase in domestic oil refining capacity, telecommunications, crop production, slight growth in investment and employment, with the bulk of projected growth coming from the non-oil sector.
It notes that “the Renewed Hope Agenda (RHA) of the Tinubu administration has significantly higher growth targets than the National Development Plan (NDP) 2021-25. The NDP is therefore undergoing a review to align its growth aspirations with the RHA.”
Consumption in nominal terms is projected to increase to N163.23 trillion in 2024 and N218.59 trillion in 2026 substantially owning to expected increase in wages and cash transfers to households to mitigate the negative impact on their real income of petrol subsidy removal.
Import of goods is projected to increase to N32.45 trillion in 2024 and to N34.51 billion in 2026 on account of the effects of depreciation of the domestic currency and imported inflation.
Imports, the document says, “will remain high over the medium term due to the weak import substitution capacity occasioned by inefficient domestic production relative to more efficient foreign producers. The real economy is experiencing sustained inflationary pressures, worsened by high energy costs, and a depreciating Naira.”
The government warns that given the persistent inflation, “economic growth during the medium term will continue to be adversely impacted because of the effort to keep monetary policy tight to help prevent higher inflation from becoming entrenched.
“Inflationary pressure is projected to continue at 21.4% in 2024. A slight reduction in inflation pressure is anticipated from 2025 and 2026 due to the lag effect of tight monetary policy on demand for goods and services, expected lower deficit financing and reduction in supply-side constraints occasioned by a drastic reduction in domestic insecurity, improved infrastructure, and generally better operating environment for businesses.”
Federation Account revenues
The projected fiscal outcomes in the medium term show improved revenue inflows into the federation account, attributable to the removal of petrol subsidy, exchange rate liberalization and increased collection of non-oil taxes.
The net amount accruable to the Federation Account is projected at N24.54 trillion. This is 106.9% higher than the 2023 projection.
N20.70 trillion is projected to flow into the Main Pool, while N3.66 trillion and N174.24 billion are projected to accrue to the VAT Pool and EMTL, respectively, in 2024.
Total oil revenues will be N13.82 trillion, about 56.3% of total Federation Account receipts and 66.8% of Main Pool receipts. Other components of the Federation Account revenues include Corporate Tax of N3.04 trillion, Customs Revenue of N2.65 trillion, Special Levies of N511.88 billion, NLNG Dividend of N667.95 billion, and revenues from Solid Minerals of N9.39 billion.
In 2024, the share of the Federal Government from the Main Federation Account Pool is expected to be N10.90 trillion, while the States and Local governments are projected to get N5.53 trillion and N4.26 trillion, respectively.
The revenue shares from the VAT Pool and EMTL are projected to be N549.46 billion and N26.14 billion, respectively, for the Federal Government, N1.83 trillion and N87.12 billion for the states, and N1.28 trillion and N60.98 billion for the local governments, respectively.
The 2024 FGN Revenue is projected at N16.96 trillion (N5.91 trillion or 54% more than the 2023 Budget). Of the aggregate revenue available to fund the 2024 Budget, N6.95 trillion or 41% is projected to come from oil-related sources. The balance of N10.01 trillion is to be earned from non-oil sources.
The FGN share of non-oil tax is projected at N3.52 trillion compared to N2.43 trillion in 2023, while its share of Minerals and Mining revenues is N4.56 billion in 2024 from N3.64 billion in 2023. The projection for Independent Revenue has been moderated to N1.91 trillion, down from N3.17 trillion, while the projection for Grants and Donor funded projects is N639.92 billion.
More dividends from the Bank of Industry, Development Bank of Nigeria, Galaxy Backbone, and Bank of Agriculture are recognised in the 2024 projections, bringing the projection to N316.68 billion compared to N81.79 billion in 2023. The projected sum of other revenues, including FGN’s share of Oil Price Royalty, Education Tax, Electronic Money Transfer Levy, and Drawdowns from Special Accounts, is N736.04 billion.
The FGN’s 2024 aggregate expenditure is estimated at N26.01 trillion. This includes the provision of N2.73 trillion for GOEs’ expenditures and grants/donor-funded projects amounting to N639.92 billion. This is higher than the corresponding 2023 FGN aggregate expenditure estimate of N22.65 trillion (which includes the N819.54 billion supplementary provision) by 14.8% (or about N3.36 trillion).
The 2024 expenditure estimate includes statutory transfers of N1.30 trillion and non-debt recurrent expenditure of N10.26 trillion (including N200 billion for the recurrent component of the Special Intervention Programme).
The provisions of N8.25 trillion and N243 billion have been made for Debt Service and Sinking Fund to retire maturing bonds issued to local contractors/creditors, respectively, in the 2024 budgeted expenditure. A total of N6.78 trillion (inclusive of N1.02 trillion for GOEs) is provided for personnel and pension costs, an increase of N904.49 billion or 15% over the 2023 provision. This is 40% of the projected aggregate revenues for 2024.
The provision for Statutory transfer includes N114.80 billion (representing 1% of the consolidated revenue fund) earmarked for the Basic Health Care Provision Fund (BHCPF) and N117.67 billion for the North-East Development Commission (NEDC). In addition, N137.21 billion has been set aside in the service-wide votes for GAVI/Routine Immunization.
The aggregate amount available for capital expenditures in the 2024 budget is N6.87 trillion. This represents 26% of total expenditure and is about 5% less than the 2023 provision of N7.27 trillion. The 2024 provision comprises N2.31 trillion for MDAs, N855.70 billion for capital supplementation, N908.09 billion for capital component of statutory transfers, N7 billion for Family Home Fund, N820.91 billion capital budget of GOEs, N639.92 billion for donor/grant funded expenditures and N941.19 billion funded by project-tied multilateral/bilateral loans.
Other provisions, including TETFUND capital and transfer to the Nigeria Sovereign Investment Authority (NSIA), amount to N392.13 billion.
FGN’s independent revenue
“The Independent revenue of the Federal Government was estimated, taking into consideration recent efforts aimed at addressing revenue leakages, excessive spending and weak accountability of Government-Owned Enterprises (GOEs).
“The estimation of Operating Surpluses (the main component of FGN Independent Revenues) is based on strict and effective implementation of the various measures introduced to ensure that GOEs operate in a more fiscally responsible manner.
“Additional measures and tighter performance management framework will be introduced to ensure greater fiscal discipline among the GOEs and substantially improve remittances in the short to medium term.
“Accordingly, independent revenue collections are expected to be considerably higher than projections. Expected improvements in returns on government owned investments/assets from the restructuring of Ministry of Finance Incorporated (MOFI) have not been factored into these projections.”
The assumptions underlying the non-oil revenue forecasts for the period 2024-2026 are based on the declining revenue from crude oil. Government has continued to implement various reform measures to further widen the revenue base, modernise and further improve tax administration, and enhance non-oil revenue collections.
“The medium-term non-oil revenue forecasts are based on sustenance and acceleration of these reform efforts by the new Administration in order to enhance the contribution of non-oil revenue sources to funding the FGN budget.
“The medium-term non-oil revenue estimates were premised on anticipated growth in the different tax bases, the effective tax rate, and the projected tax collection efficiency. Tax rates are assumed to remain largely the same during the period.
Customs Collections: Import Duties, Excise, Fees and Special Levies Import duty projections are based on the cost, insurance and freight (CIF) value of imports, applicable tariffs, and a projected efficiency factor. The growth of the nominal tax base is assumed to be driven by tax elasticity in the medium term. Other considerations include the foreign exchange rate, effective implementation of extant tax laws, the implementation of the Common External Tariff (CET) 2022-2026, and renewed focus on the implementation of the Africa Continental Free Trade Agreement (AfCFTA).
Companies Income Tax (CIT)
The CIT projections are based on estimated nominal GDP, Companies’ Profitability Ratio, and further improvement in collection efficiency. The Gross Operating Profits of firms for which CIT forecast was derived is assumed to average N9.3 trillion for 2024, 10.6 trillion for 2025 and 11.2 trillion for 2026, after adjusting for firms in the informal sector. Estimates were derived taking into consideration significant growth of domestic economic activities as well as the effective implementation of the National Development Plan 2021-2025. Other important assumptions include significant improvement in the Nigerian business and investment environment and successful broadening of the tax net. More importantly, the historical growth in the volume of online transactions is expected to be sustained.
Value Added Tax (VAT)
The VAT was projected using estimated aggregate nominal consumption, taking into account vatable items and collection efficiency. Consumption expenditure on which VAT is charged is assumed to increase from an average of N35 trillion in 2024, to N40 trillion in 2025 and N45 trillion in 2026, after adjusting for exemptions, zero rated items and companies whose turnover fall below the N25 million threshold. Like the CIT, more VAT payers are expected to be brought into the tax net with the effective implementation of the provisions of the various Finance Acts.
The VAT projections over the medium-term are based on holding the rate at 7.5%. Raising the VAT rate however remains a policy option for government to keep in view over the medium term.
In the medium term, Government will intensify efforts aimed at improving VAT coverage and collection efficiency. Wider coverage and improved collection efficiency will be achieved through nationwide VAT registration and monitoring, and deployment of ICT (auto-collect) platforms in more sectors of the economy. In addition, the technology solution for deduction and remittance of VAT and WHT from State government contract payments is to be deployed in all the 36 states.
Electronic money transfer levy
The Electronic Money Transfer levy will continue to be implemented in the medium-term. Compliance with the approved Regulations governing the administration of the levy will be enforced to significantly improve collections over the medium term. Estimates were based on the projected volume of eligible online transfer transactions of 2.7 trillion in 2024, 3.1 trillion in 2025 and 3.8 trillion in 2026.
Public debt profile as at June 2023 stood at N 87.38 trillion ($113.42 billion). This figure includes both domestic (incl. Securitized CBN Ways and Means advances) and external debt. The debt composition is skewed more towards domestic debt of N54.13 trillion ($70.26 billion), while external debt amounted to N33.25 trillion ($43.16 billion).
However, government is worried that “the sustainability of public debt remains a significant concern, as high debt servicing costs and limited fiscal space constrain the government’s ability to invest in critical sectors such as healthcare, education, and infrastructure.”
– The Nation
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