With the three tiers of government and the Federal Capital Territory sharing N1.95 trillion from the Federation Account in the first quarter of 2020, the Nigeria Extractive Industries Transparency Initiative (NEITI) has projected lower remittances in the remaining part of the year.
Since the outbreak of the coronavirus pandemic Nigeria’s earnings from oil exports have declined significantly.
With the worsening coronavirus crisis, the Federal Government has reviewed the fiscal fundamentals in the 2020 Appropriation Act twice – from the initial approved oil benchmark price of N57 per barrel to $30 per barrel, and lately to $20 per barrel.
Similarly, crude oil production capacity has been reviewed from the initial 2.2 million barrels per day to about 1.7 million barrels per day.
The implication is a reduction in oil revenue earnings and by extension declining remittances to the Federation Account from where statutory allocations are drawn monthly and shared among the three tiers of government.
In the latest edition of its Quarterly Review Report published on Monday in Abuja, NEITI said with the growing challenges associated with the COVID-19 pandemic and lockdowns across the world, the situation is bound to deteriorate in the coming months.
Share of disbursements
Figures from the report showed that out of the total disbursements, the Federal Government shared about N791.4 billion, against N669 billion by the 36 states and N395 billion by the 774 local government areas.
During the period under review, total Federation Accounts Allocation Committee (FAAC) allocations comprised gross disbursements to the Federal Government, States, Local Government Councils and the 13 per cent derivation to the oil-producing areas and the North East Development Commission (NEDC).
Allocations were made for cost of collections by the revenue agencies, namely Nigerian Customs Service, the Federal Inland Revenue Service (FIRS), the Department of Petroleum Resources (DPR) and transfers to the Excess Crude Oil Savings Account.
FAAC disbursements for the period under review, the report said, showed a consistent decline, which established a trend reflecting possible impacts of COVID-19 on government revenues.
“While total disbursements in Q1 2020 were slightly higher than Q1 2019 and Q1 2018, disbursements to the three tiers of government in Q1 2020 were slightly lower than Q1 2019 and Q1 2018. This is due to transfers to other accounts in Q1 2020 which were not done in either Q1 2019 or Q1 2018.
“These include allocations to the North East Development Commission and transfer to Excess Crude Account,” the review noted.
On FAAC disbursements to states between January and March this year, NEITI noted a wide disparity of 708 per cent between states, with Osun receiving the lowest allocation of N6.44 billion and Delta, the highest disbursement of about N52.03billion.
Also, Delta State’s net FAAC receipts were higher than the combined total receipts of the six lowest receiving states by about N50.67 billion. The six states comprised Osun, Cross River, Plateau, Ogun, Ekiti and Gombe.
Further analysis revealed the combined disbursements to four states (Delta, Akwa Ibom, Rivers and Bayelsa) with the highest net FAAC receipts were higher than the combined net disbursements for the 17 states with the lowest disbursements.
“The combined total net disbursement to the four states was N167.76 billion, which is higher than the combined total of N159.99 billion received by the 17 lowest receiving states (Osun, Cross River, Plateau, Ogun, Ekiti, Gombe, Zamfara, Kwara, Nassarawa, Ebonyi, Taraba, Benue, Adamawa, Bauchi, Abia, and Kogi)”, the review stated.
In addition, 31 states received less than N20 billion as total net FAAC disbursements in the first quarter of this year, while only five states received more than N20 billion.
The five States are Lagos (N26.23 billion), Bayelsa (N35.14 billion), Rivers (N39.99 billion), Akwa Ibom (N40.61 billion), and Delta (N52.03 billion).
Deductions for debt obligations
Further review of the report showed a wide disparity in deducted from the states for their debt service obligations.
For instance, Lagos State had the highest deductions of N14.92 billion, while Yobe State had the lowest deductions of N820.18 million.
On prospects of FAAC disbursements for the rest of the year as a result of the impact of COVID-19, the review remarked: “In light of the ‘double whammy’ of declining oil demand and crude oil prices as a result of the COVID-19 pandemic, government revenue would likely continue to fall in subsequent months.
“As global crude oil prices plummet in the midst of the global oil supply glut arising from lockdown of economic activities in many countries of the world, all tiers of government will struggle to fund their 2020 budgets.”
The report gave the projected total revenue for the Federal Government for the year at N8.42 trillion, comprising oil revenue of N2.64 trillion, non-oil (N1.81 trillion), and revenue from other sources (N3.97 trillion).
It said oil revenue remained the dominant single source of revenue, with about N2.64 trillion making up 31.35 per cent of total projected revenue.
Apart from the direct oil revenue, the report said revenue from indirect sources includes signature bonus, oil license renewals and share of dividend from the Nigeria LNG.
In addition, the report said taxes and customs duties, which are based on economic activities will suffer in the light of the lockdown of the major activity hubs of the country.
NEITI welcomed the proactive measures already taken by the Federal Government towards improved FAAC accrual, including the approval to withdraw $150 million from the Stabilisation Fund to supplement FAAC disbursements; initiating modalities for states to benefit from debt and interest moratorium, the review of this year’s budget to reflect current economic realities and a $3.4 billion facility by the International Monetary Fund (IMF).
The transparency agency urged state governments to emulate Federal Government’s initiatives by making necessary adjustments in their revenue and expenditure plans for the year and by relying more on internally generated revenue (IGR) to service their budgets.
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