The upward swing in the price of crude oil seems to have brought renewed optimism leading to increase in disbursement to the three tiers of government. BENJAMIN UMUTEME examines the third quarter disbursement by the Federation Accounts Allocation Committee (FAAC) to the three tiers of government as contained in a review published yesterday by the Nigeria Extractive Industries Transparency Initiatives (NEITI).
When oil prices started to rise following interventions by the Organisation of Petroleum Exporting Countries (OPEC) everybody knew it would not take long before the price of crude oil shoots up.
And coincidentally, the rise in oil price propelled the emergence of the economy from the woods of recession. Also, it signaled increased allocation to the federal, states and local governments by the Federation Accounts Allocations Committee (FAAC).
Therefore, it was no surprise when the Nigeria Extractive Industries Transparency Initiative (NEITI) in its latest quarterly review report of FAAC disbursements to the three tiers of government revealed that the sum of N4.545 trillion was disbursed between January and September 2017 to the three tiers of government.
Out of this amount, N1.757 trillion was shared in the third quarter of 2017 as against the N1.377 trillion and N1.411 trillion disbursed in the second and first quarters of the year.
Total FAAC disbursements increased by 1.09% between Q3 2016 and Q3 2017
The publication which contains information and data on FAAC disbursements for the third quarter of 2017 and on mid-year budget implementation also revealed that between January and September 2017, the federal government received the highest allocation of N1.851.32 trillion, followed by state governments with N1.509 trillion and the 774 local governments with N913.8 billion.
The sum of N271.78 billion went to Department of Petroleum Resources (DPR), Customs and the Federal Inland Revenue Service (FIRS) as cost of revenue collections.
Further analysis shows that the revenues shared to the federating units were higher in the third quarter of 2017 which has been the pattern for some years now.
For instance, while the federal government got N549.41billion in the second quarter of 2017, third quarter figures were N752.79 billion, an increase of 37.02%.
The trend is the same for the states and local governments which received N586.58 billion and N363.98 billion in the third quarter as against N467.13 billion and N280.42 billion in the second quarter respectively, representing 25.57 per cent and 29.80 per cent increase between the two quarters for the two tiers of government.
The review attributed the reason for the increases in FAAC disbursements to the three tiers of governments in the third quarter to what it called “Positive developments in the oil sector–evident from resurgent oil prices and increased production levels.
“The third quarter also represents the summer season when global oil demand and consequently oil prices are generally higher than other times of the year and this could possibly explain the higher revenue accruals to the Federation account in these third quarters”.
The NEITI Quarterly Review which based its analysis on data obtained from FAAC, National Bureau of Statistics, Federal Ministry of Finance and the Budget Office of the Federation noted that “Upward trend in the FAAC disbursements to the three tiers of governments are encouraging signs which if sustained will improve government expenditures, help to boost economic activities and move the country further away from recession”.
Volatility in FAAC disbursement?
The Review also noted a high degree of volatility in FAAC disbursements in the period under review. For instance, the federal and local governments received highest revenues in July recording as much difference as 75 per cent and 58 per cent respectively between the months with the highest and lowest disbursements.
State governments on the other hand got the highest allocations in September with a difference in revenues of about 53 per cent between the high and low revenue months.
“Disbursements to the federal, states and local governments have risen and fallen in alternate months throughout the year, making economic planning and execution of capital projects difficult”, the report stated underlining the need for “diversified sources of government revenue to limit volatility and ensure more stable and predictable revenue streams,” the report stated.
Moreover, revenues in the first half of 2017 were about 49 per cent lower than budgeted figures. According to data, while government projected N5.368 trillion revenue flows in its 2017 Fiscal framework for the first six months of the year, actual inflows were N2.712 trillion.
From the report, government’s half year projections was N2.667 trillion for oil and N2.701 trillion for non-oil revenue. However, actual revenue for the first half of the year fell short of projections.
“Actual oil revenue was N1.587 trillion, representing a shortfall of N1.079 trillion, implying a 40.4% underperformance. Non-oil revenue fared slightly worse, as only 41.6% of the projected revenue was realized. Actual non-oil revenue totaled N1.125 trillion, indicating a shortfall of N1.575 trillion.”
Projections by the government had showed that non-oil sector was expected to outperform the oil sector, but the oil sector performed better by as much as 41 per cent in revenues generation raking in N1.587 trillion as against N1.125 trillion for the non-oil sector.
Oil still dominant source of revenue
Figures for the three tiers of government were no different, as shown by the report had a projection of N2.542 trillion revenue flows for the first half of 2017 but actual revenue was N1.497 trillion.
A breakdown showed that the oil sector continues to account for large part of the shortfall of 60 percent while the non–oil sector underperformed by 49 per cent
According to NEITI, Budgeted half-year inflows from the oil sector was N1.061 trillion but actual oil inflows to the federal government was N414 billion. The federal government’s budget estimated half-year non-oil revenue inflows at N705 billion but realized only N352 billion, indicating a 49 per cent shortfall, an indication that total revenues were higher in the first half of 2017 than the corresponding period of 2016 by 22 per cent.
The report indicates that all sources of oil revenues with the exception of rents recorded positive improvements in 2017 than 2016 first halves, For the non-oil sector revenues from Value Added Tax (VAT) was the largest contributor to revenues with a 16 per cent increase over 2016 figures.
The report attributes the development to “increase in economic activities, expansion in the tax base and the improvement in performance of revenue collecting agencies.”
States not doing enough
The NEITI Quarterly Review further analysed the committee’s disbursements to the 36 states of the federation in the first three quarters of 2017.
It observed that allocations to the three levels of government were 42 per cent lower than the budgetary requirements of the states.
“States will have to aggressively raise their IGR in order to be able to actualize their budgets. The alternative is increased borrowing. About half of the states (15 states) have FAAC disbursements as a ratio of budgets lower than 20%,” NEITI opined.
