By Chinwendu Obienyi
Despite the mild growth in the cumulative internally generated revenue (IGR) of states disbursed across the country by the Federation Accounts Allocation Committee (FAAC), economic analysts have expressed worries, that fiscal independence and meaningful developments will continue to remain elusive in the months and years ahead.
The IGR which is a key measure of a state’s viability, is the cumulative accretion from taxes, assessments, duties, rents and sources other than inflows from the FAAC, domestic and foreign aid or grants over a period of time, usually a quarter or a year.
According to data obtained from the National Bureau of Statistics (NBS), the cumulative IGR of the 36 sub-nationals and the FCT in 2022 grew by a muted 1.6 per cent year-on-year (y/y) to N1.9 trillion as against an expansion of 21.5 per cent recorded in 2021. The report noted that the slow growth in cumulative IGR was mainly due to the 13.6 per cent decline in Lagos state’s IGR to N651 billion, even though it maintained its leadership position in terms of its share of the cumulative IGR.
However, on a month-on-month basis, the amount disbursed to the three tiers of government in October (from the total revenue generated in September) printed lower by 17.9 per cent m/m to N903.48 billion as against N1.10 trillion recorded in September. The amount shared was 56.7 per cent of the month’s gross revenue (N1.59 trillion vs August: N1.48 trillion), with the remaining balance spread across N54.43 billion cost of collection, N347.86 billion transfers & refunds, and N289.00 billion saved for future needs.
Moreover, a significant increase in inflows from the Petroleum Profit Tax (PPT) and Oil and Gas Royalties were the major drivers of the revenue generated in the review period.
This meant that 80 per cent of Nigeria’s sub-nationals are still reliant on FAAC allocation and borrowings to drive governance.
Commenting on the development, analysts at Afrinvest, at the weekend, noted that although the combined effects of improved crude oil output, reduced PMS subsidy payment burden and a higher Naira translation gains have boosted FAAC allocation in recent months, fiscal independence and meaningful developments will continue to remain elusive to the sub-nationals if an enabling environment is not created to attract divergent businesses especially in areas where the state has comparative advantages.
They added, “Fiscal independence will remain elusive if inherent potential such as land, labour force are not effectively exploited to drive organic growth and innovative digital solutions are not deployed in managing state revenue collections to curb leakages”.
For their part, analysts at Cordros Research said that they expect the currency depreciation accompanying the FX market liberalisation to continue supporting oil revenue in naira terms, noting that low crude oil production may likely ensure oil revenue remains underwhelming relative to pre-pandemic levels.
“At the same time, we maintain our expectation that the non-oil revenue will continue to support aggregate revenue, given the continuous implementations of the provisions of the various Finance Acts and growth in the different tax base amid an improvement in domestic economic activities,” they said.