Federation account falls by 30%

A new report by the Nigeria Extractive Industries Transparency Initiative (NEITI) has shown that disbursements from the Federation Account to the three tiers of government plunged by 30 per cent in the first half of this year when compared to the corresponding half of last year.

This sharp drop in revenues may negatively impact budget implementation across the three tiers of government this year, increase the size of budget deficits, and deepen the debt burden, NEITI warned.

This is contained in a report titled: FAAC Disbursements in First Half of 2016 and Possible Implications, released yesterday in Abuja. The report is the maiden issue of the NEITI Quarterly Review, a publication that will focus on issues around transparent and accountable management of revenues from the extractive sector.

Undertaken pursuant to Section 3(i) (j) of NEITI Act 2007, the report analysed disbursements by the Federation Accounts Allocation Committee (FAAC) in the first halves of last year and this year, and highlighted possible implications for public governance and management in the country.

According to the report, revenues shared to the three tiers of government were less by over N800billion from N2.89billion last year to N2.01billion this year. This 30 per cent decline reflected in lower allocations across the board.

The report stated: “Total disbursements to the Federal Government fell from N1.23 trillion in the first half of 2015 to N854 billion in the first half of 2016. This represents a 30.9 per cent decline. Total disbursements to states fell by 30.5 per cent from N1.009trillion in the first half of 2015 to N701billion in the first half of 2016. For local governments, allocations from FAAC (Federation Account Allocation Committee) dropped by 26 per cent from N580.63billion to N429.43billion.”

The reasons for the plunge in allocations, according to NEITI, include  the drastic fall in oil prices, lower oil production due to the activities of Niger Delta militants, and lower non-oil revenues as a result of lower taxes arising from contraction in government spending, fall in consumption and investment expenditures and decline in economic activities.

Citing statistical data by the Central Bank of Nigeria (CBN) showing the gap between oil and non-oil revenues and analysis of oil prices and its correlation to FAAC disbursements, the report pointed out that “the dependence of governments at all tiers on the oil sector highlights the vulnerability of public revenue to global oil market developments.

“On average, statutory allocations constituted 86 per cent of total disbursements to the Federal Government in the first half of 2016. Statutory allocations make up 71 per cent of total disbursements to state governments and 67 per cent of disbursements to local governments. Thus, the Federal Government relies more on statutory allocations than the state or local governments”.

NEITI however explained that the reason for the greater exposure of the Federal Government on statutory allocations is because of the country’ s revenue sharing formula: the Federal Government is allocated 52.68 per cent of statutory allocations while the states and local government areas receive 26.72 per cent and 20.60per cent respectively. This imbalance is however adjusted by the fact that the Federal Government receives only 15per cent of Value Added Tax (VAT), while states and local government areas take 50 per cent and 35per cent respectively.