Economic Pressure Increases as FG’s Estimate Puts Fuel Subsidy Cost at N1.8trn
There are indications that federal government’s revenue may be facing increasing pressures as oil revenue continues to falter, dropping about -26% Year-on-Year, YoY, to N393billion in August 2021, 22% below the pro-rata benchmark set in the 2021 budget amidst a growing cost of fuel subsidy.
Petroleum profit tax and royalties, and domestic crude oil and gas sales fell -15% YoY and -41% YoY respectively.
Amidst this development, the ministry of finance has assessed the monthly fuel subsidy bill at N150billion, which shows an unsustainable yearly sum of N1.8trillion.
Analysts at the FBNQuest, the research operations of an investment banking arm of First Bank Holding Plc, have given further insight into what is happening, in its report last week.
The report stated: ‘‘The CBN’s monthly report for April 2021 shows improvements in the federation’s gross revenue, thanks to a gradual return of economic activities to pre COVID-19 levels.
‘‘Gross revenue increased 21% Year-on-Year, YoY, to N1.1trillion, and was 8.0% higher than the pro-rata monthly budget. The revenue performance was driven by growth in non-oil revenue which advanced 87% YoY to almost N713billion, and outperformed the benchmark by 37%.
‘‘The performance is encouraging considering that non-oil revenue underperformed the benchmark in March 2021 by 11%.
‘‘A substantial amount of non-oil revenue outperformance was attributed to companies’ income tax (CIT), which climbed by 74% YoY due, in large part, to seasonality in tax remittance. Another positive component was VAT revenue, which was up 51% YoY following a 250 basis points YoY rise in the standard rate to 7.5% in February of last year.
‘‘We believe that an additional factor was increased personal consumption as firms resumed normal operations. Supporting our thesis is GDP data which shows that the trade and manufacturing sectors expanded by 22.5% and 3.5% YoY respectively in second quarter, 2021, Q2’21.
‘‘In contrast, oil revenue continues to disappoint. It was down -26% YoY to N393billion in August and was 22% below the pro-rata benchm
Notably, petroleum profit tax and royalties, and domestic crude oil and gas sales fell -15% YoY and -41% YoY respectively.
‘‘Total proceeds from crude oil and gas exports were a paltry N4.0 billion, compared with N35billion in April 2020, and a monthly budget average of N53billion, owing largely to “under-recoveries”, or subsidies on gasoline (petrol) incurred by the Nigerian National Petroleum Corporation. Other oil revenue came in at N16billion in April 2021 compared with a benchmark of N96billion.
‘‘The ministry of finance assessed the monthly subsidy bill at N150billion, which shows an unsustainable yearly sum of N1.8trillion.
‘‘In the full year 2020, gross federally collected revenue stood at a meagre 6.0% of GDP. Given the state of government’s fiscal position, eliminating fuel subsidies would be a prudent move towards relieving the economic burden.
‘‘Recently a lot of furore was generated over the clamour by Rivers and Lagos State governments to take charge of VAT collection in their respective states rather than having it handled by the Federal Inland Revenue Service. ‘‘The debate has shifted to the Supreme Court. This is a development that will be closely watched as the outcome could have major ramifications.’’