Government dependence on monthly allocations threaten Nigeria’s development – NEITI

The continued exclusive dependence on monthly revenue allocations from the Federation Account by the three tiers of government is a threat to national development, the Nigerian Extractive Industries Transparency Initiative (NEITI) has said in its quarterly review report.

The new report, which compared disbursements from the Federation Account to the federal, state and local governments in the first half of 2016 to the corresponding half of 2015, noted a 30 per cent decline in the allocations for the period.

Details of the report showed that revenues shared to the federal, states and local governments declined by over N800billion for the period, from N2.89 billion in 2015 to N2.01billion in 2016.

Total disbursements to the federal government in the first half of 2015, the report said, fell from N1.23 trillion to N854 billion, a decline of about 30.9 per cent, when compared to the allocation in the first half of 2016.

Equally, total disbursements to the 36 states of the federation dropped by about 30.5 per cent for the same period, from N1.009 trillion to N701 billion, while the 774 local governments shared allocations dropped by about 26 per cent, from N580.63 billion to N429.43 billion.

The sharp drop in revenues, the report pointed out, may negatively impact budget implementation across the three tiers of government in 2016, increase the size of budget deficits, and deepen government’s debt burden.

Besides, the dislocation of the revenue projection by the drastic drop in revenue realized would affect national development plans, unless alternative revenue sources were developed.

NEITI cited the sharp fall in global oil prices, lower oil production due to attacks on oil facilities in the Niger Delta and lower non-oil revenues as a result of lower taxes from contraction in government spending, as reasons for the drop in revenue. Other reasons are fall in consumption and investment expenditures and decline in economic activities.

“With the sharp drop in allocations to the three tiers, governments may be unable to fund their budgets in 2016, unless they resort to borrowing, which was the norm even during times of greater revenues and higher allocations from FAAC,” the report said.

“While borrowing might be necessary to increase government’s capacity to spend, especially when the country is in economic recession, more borrowing will “deepen budget deficits and debt burden across the three tiers of government,” it added.

Reviewing statistical data by the Central Bank of Nigeria (CBN) to highlight the gap between oil and non-oil revenues, as well as correlating oil prices and FAAC disbursements, the report said “the dependence of governments on oil revenues underscores the vulnerability of national development to global oil market developments.”

On average, the report said statutory allocations constituted more than 86 per cent of total disbursements to the federal government in the first half of 2016, about 71 per cent of total disbursements to states and 67 per cent to local governments.

NEITI, however, explained that the federal government, which receives 52.68 per cent of statutory allocations, has the greater exposure over states and local governments’ 26.72 per cent and 20.60 per cent respectively.

“This imbalance is however adjusted by the fact that the federal government receives only 15 per cent of value added tax (VAT), while states and LGAs take 50 per cent and 35 per cent respectively,” the report said.

Titled “FAAC Disbursements in First Half of 2016 and Possible Implications”, the report is the maiden issue of the NEITI Quarterly Review, a publication focused on the transparent and accountable issues of management of revenues from the extractive sector.

Undertaken pursuant to Section 3(i) (j) of NEITI Act 2007, the report analyzed disbursements by the Federation Accounts Allocation Committee (FAAC) in the first halves of 2015 and 2016, and possible implications for public governance and management in the country.