5 Things to note from June’s FAAC Disbursement

In June, the Federation Account Allocation Committee (FAAC) disbursed a sum of ₦547.31 billion to the three tiers of government. Of this sum, the federal government (FG) received  ₦219.80 billion, while states received  ₦152.47 billion. Disbursement to local governments was ₦114.09 billion. The FAAC paid out the remaining funds as derivation funds to oil-producing states and other statutory agencies of government. From the report, DATAPHYTE have identified five subjects of attention.

1. Trend of FAAC disbursement for 2020

In the first half of 2020, the FAAC disbursed ₦3.9 trillion to the three arms of government. April accounted for the highest disbursement period, January following closely. Since April, however, there appears to have been a decline in the size of FAAC disbursement. So far, disbursement for June is the least for 2020. Recall that a DATAPHYTE report in the same month highlighted the series of uncertainties around Nigeria’s revenue framework; further predicting distortions and declines in FAAC disbursements. What’s more, the trend of events does not suggest a better outlook. Given Nigeria’s current revenue realities, the size of FAAC disbursements may continue to decline for the rest of the year.

2. Trend of Nigeria’s revenue for 2020

Between January and now, Nigeria’s revenue has been inconsistent; save the statutory account, Value Added Tax (VAT) and exchange gain differences, all of which contributed to the monthly disbursement this year. Even at that, the net contribution of these sources has been inconsistent. Overall, the contribution of the statutory account declined consistently between January and June. For VAT, it was mainly inconsistent for the first half of the year. Other revenue sources were also inconsistent in their contributions. Still, the COVID-19 pandemic and oil trade wars contributed in part to these inconsistencies, some say.

3. VAT contribution to total revenue

Despite Nigeria’s revenue crises, VAT consistently contributed to the country’s revenue throughout the first half of the year. And although it initially took a dive in successive months between January and March, its contribution reportedly rebounded in June. Also, VAT’s contribution was more in June than it was in May. The trend of VAT contribution outlines its significance and projects it as a viable revenue source. Perhaps Nigeria can investigate the prospects of taxation for revenue generation. With this in mind, accountability becomes paramount. Given the pandemic and its aftermath, the surprising allocation from VAT underscores the need for the government to be altruistic and transparent in its utilisation of funds. Closely related would be to streamline expenditure to offer value to taxpayers.

4. State revenue versus deductions

The June FAAC payout has also shed light on the condition of disbursement to states across the country. From the report released by the National Bureau of Statistics, Delta State received the most gross total allocation (₦12.9 billion). This is followed by Akwa Ibom (₦10.3 billion), Rivers (₦8.8 billion), Bayelsa (₦8.3 billion), Kano (₦4.1 billion), Lagos (₦3.4 billion), and Edo (₦3.3 billion). However, after deductions (external debts, contractual obligations, and other deductions), net allocation was significantly impacted for many states. For example, Lagos state lost over 70% of its gross allocation to deductions. Similarly, Cross River lost about 58%, Osun lost 56%, and Plateau lost 53%. Thus, Lagos received the least net allocation, followed by Osun, Cross River, and Plateau State.

The proportion of deduction for some states is particularly worrisome. It further generates questions on the sustainability of borrowing by states in the country. Note that many states in the country cannot sustain themselves on internally generated revenues. Thus, deduction of as much as 50% of gross allocation could compromise the delivery of governance, infrastructure development, and human development in states across the country. The high proportion of deductions for some states underscores the importance of developing a framework to guide borrowing by states. In addition, the FG ought to ensure that states comply with guidelines on domestic and international borrowing.

5. Disbursement to Local Government Areas (LGA)

FAAC dispersed ₦143.70 billion to local governments in June; i.e. over 75% of the net disbursement to states. Despite this sizable disbursement to local governments, the state of accountability in this tier of government remains unknown. For instance, even though the six LGAs in Nigeria’s Federal Capital Territory received close to ₦1 billion in June, the usage of said funds remains opaque; a situation reminiscent of the “Nigerian condition”. Thus, it is time to demand accountability from Local governments who should bring the dividends of government closer to the people.

Two words: sustainability & accountability!

The June FAAC disbursement and the trend of disbursement for 2020 reiterates the need for accountability and sustainability. Specifically, Nigeria’s revenue realities beckon the need for holistic revenue generation measures and economic diversification. FG should devise sustainable alternatives for revenue generation at national and subnational levels. Part of said revenue sustainability measures should also stipulate and enforce guidelines on excessive borrowing by states. Also significant is the need for states to develop economic sustainability plans as recommended by a DATAPHYTE report. Alongside this is the need to promote accountability in the administration of revenues at the three tiers of government.