By Chinwendu Obienyi
Fresh concerns are mounting over the outlook for the Federation Accounts Allocation Committee (FAAC) disbursements, following a marginal decline in June, as analysts warn that foreign exchange stability, despite being positive for inflation and import costs, could dampen government revenue inflows in the months ahead.
The Federation Accounts Allocation Committee (FAAC) bursed N1.66 trillion to the three tiers of government in June, representing a 1.3 per cent decline from the N1.68 trillion shared in May.
According to the breakdown released by FAAC, the decline in revenue was attributed to lower collections from key oil-related sources, including the Petroleum Profit Tax (PPT), Oil and Gas Royalties, Customs External Tariff (CET) levies, and the Electronic Money Transfer Levy (EMTL). These outweighed increases in receipts from Companies Income Tax (CIT), Value Added Tax (VAT), Import Duty, and Excise Duty.
From the total gross revenue of N2.94 trillion generated in May, only N1.66 trillion—or 56.4 per cent—was disbursed. The balance was channeled to various statutory deductions: N1.17 trillion for transfers, interventions, and refunds, and N111.91 billion for the cost of revenue collection.
Daily Sun learnt that in line with the existing revenue-sharing formula, the Federal Government received N538 billion, down from N565.31 billion in May while state governments got N577.84 billion, up slightly from N556.74 billion. Also, local governments received N419.97 billion, an increase from N406.63 billion while oil producing states received an additional N124.08 billion as 13 per cent derivation from mineral revenues, marking a significant drop from N152.55 billion the previous month.
Reacting to the development, analysts at Cordros Research, an investment and research based firm, in an emailed note said that the declining oil-related revenue reflects persistent challenges in Nigeria’s crude oil production, including under-investment, theft, and aging infrastructure.
Official production figures continue to fall short of OPEC quotas, limiting the country’s capacity to fully benefit from any price recovery in the global market.
However, the recent appreciation and relative stability of the naira, while positive for inflation and import costs, has reduced the naira equivalent of dollar-denominated oil revenues.
This in turn removed a key buffer that temporarily inflated FAAC receipts during months of currency volatility.
“In months when the naira weakened sharply, there was a natural boost to FAAC inflows. Now that the exchange rate is stabilising, those windfall gains are tapering off, even though oil earnings in dollar terms have not improved meaningfully.
In the near term, we expect potential revenue gains from two key sources: an uptick in domestic oil production and higher Company Income Tax (CIT) collections supported by improving macroeconomic conditions.
However, the recent stability of the naira may dampen exchange rate gains on foreign-denominated collections, potentially limiting the overall growth in FAAC disbursements”, Cordros Research said.
This poses growing fiscal risks, especially for state and local governments that rely heavily on FAAC allocations for salaries, infrastructure, and social services.
Hence, states with low internally generated revenue (IGR) are expected to feel the most pressure in the coming months.
Looking forward, the sustainability of FAAC inflows will depend on a combination of improved oil production, further gains in non-oil tax compliance, and structural fiscal reforms. However, without a significant shift in revenue drivers, the outlook remains fragile