FAAC allocation drops by 30%, may affect 2016 budget implementation – NEITI

The Nigerian Extractive Industries Transparency Initiative says disbursements from the Federation Account through the Federal Accounts Allocation Committee to the three tiers of government plunged by 30 per cent in the first half of 2016.

A report signed by NEITI Director of Communications, Dr. Orji Ogbonnaya Orji, on Monday in Abuja stated that the decline might affect this year’s budget implementation and increases the nation’s deficit.

The new NEITI report shows that disbursements from Federation Account to the three tiers of government plunged by 30 per cent in the first half of year when compared to the same half of 2015.

The sharp drop in revenues might negatively impact on budget implementation across the three tiers of government this year, it stated.

The drop will increase the size of budget deficits and also deepen the debt burden.

The report, titled: “FAAC Disbursements in first half of this year and possible implications,” is the maiden issue of the NEITI quarterly review.

According to NEITI, the publication will focus on issues around transparent and accountable management of revenues from the extractive sector.

NEITI’s latest review is in pursuant to its enabling law of 2007.

The report analysed disbursements by FAAC in the first halves of 2015 and this year and highlighted possible implications for public governance and management in the country.

It stated that the revenues shared to the federal, states and local governments were less by over N800 billion from N2.89 billion in 2015 to N2.01 billion in 2016.

It noted that the decline reflected in lower allocations across the board.

According to the report, total disbursements to the Federal Government fell from N1.23 trillion in the first half of 2015 to N854 billion in the first half of 2016, representing a 30.9 per cent decline.

Total disbursements to states fell by 30.5 per cent from N1.009 trillion in the first half of 2015 to N701 billion in the first half of 2016.

The report said: “For local governments, allocations from FAAC dropped by 26 per cent from N580.63 billion to N429.43 billion.”

It listed drastic fall in oil prices, lower oil production due to militancy and lower non-oil revenues because of lower taxes arising from contraction in government spending, as reasons for the plunge.

Others reasons are fall in consumption and investment expenditures and decline in economic activities.

The report cites statistical data from the Central Bank of Nigeria showing the gap between oil and non-oil revenues and analysis of oil prices and its correlation to FAAC disbursements.

The report shows that the dependence of governments at all tiers on the oil sector highlighted the vulnerability of public revenue to global oil market developments.

It said: “On average, statutory allocations constituted 86 per cent of total disbursements to the Federal Government in the first half of 2016.’’

The report further states that statutory allocations make up 71 per cent of total disbursements to state governments and 67 per cent of
disbursements to local governments.

It also disclosed: “Thus, the Federal Government relies more on statutory allocations than the state or local governments.”

The report quoted NEITI as saying: “The reason for the greater exposure of the Federal Government on statutory allocations was because of the country’s revenue sharing formula.”

The Federal Government allocated 52.68 per cent of statutory allocations while the states and LGAs received 26.72 per cent and 20.60 per cent respectively.

The document added that the imbalance was adjusted by the Federal Government receiving only 15 per cent of VAT, while states and LGs took 50 per cent and 35 per cent respectively.

The sharp drop in allocations to the three tiers means that governments may be unable to fund their budgets this year, unless they resort to borrowing.

However, borrowing may be necessary to increase government’s capacity to spend, especially when the country is in economic recession.

The report states that more borrowing will deepen budget deficits and debt burden across the three tiers.

The review is, however, optimistic that the trend is that allocations are mostly lower in the second half of the year than in the first.

The trend might, however, be different with the resurgence in oil prices, decrease in the disruption of crude oil production by militants and exchange rate gains.