Pressure on the states to change their ways

It is well known that state governments (with an exception or three) depend upon the monthly payout from the Federation Account Allocation Committee (FAAC) to maintain their core services. We also know that the payouts are dominated by mineral (ie oil) receipts. Today’s chart shows a broad decline in state government receipts coinciding with the slide in crude oil prices in mid-2014. The data series from the CBN only runs to Q2 2017 although the FAAC distributions have settled on a plateau a little above N600bn since the start of this year.                                                                                                      

  • The state governments have benefited from five debt relief packages under the Buhari administration: the best known have been the conversion of borrowings from DMBs into FGN long bonds, and “refunds” for overpayments of debt service to the Paris and London clubs of external creditors more than a decade ago.
  • The impact of the packages has not been transformative. Babatunde Fowler, executive chairman of the Federal Inland Revenue Service (FIRS), told the Chartered Institute of Taxation of Nigeria in Abuja last week that the states in the western region (other than Lagos) did not generate enough revenue from taxes to pay salaries, let alone initiate any developmental projects. He added that the internally generated revenue (IGR) collected by Lagos State was the equivalent of the takings of another 31 states combined.
  • The recovery in the crude oil price provides a reprieve of sorts for the states.


Sources: CBN; FBNQuest Capital Research
  • This overdependence will ease if the states are able to boost their collection of IGR. In reality, some states have limited scope to make their finances more autonomous. The majority have such possibilities open to them and, influenced by the FGN’s encouragement and punitive measures, a good number are moving in the right direction.


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