Dwindling federal allocations to states
Recently, Babatunde Fashola, governor of Lagos State, made an un-scheduled appearance at the Lagos State House of Assembly, where he unequivocally registered his worry over the dwindling monthly federal allocation to states as well as what he described as federal government’s “uncoordinated fiscal policies”.
Fashola went on to say that the National Economic Council meeting, which ought to be held on monthly basis, had not been held for six months, stating that the situation had become so bad that some states had resorted to borrowing in an attempt to avoid running the government aground.
Also, recently, Rotimi Amaechi, governor of Rivers State, had expressed sadness over the dwindling federal allocations to the state, attributing it to the trend to corruption in the oil sector. By the same token, Mu’azu Babangida Aliyu, Niger State governor, recently raised the alarm that revenue accruable to the 36 state governments from the Federation Account had declined by about 40 per cent over the last six months, warning that if the situation was not checked by relevant authorities, most of the states would not be able to pay workers’ salaries.
Also, occurring alongside is the continued depletion of Nigeria’s Excess Crude Account (ECA), which is expected to serve as a countercyclical bulwark against oil revenue shortfalls.The Excess Crude Account has been depleted from $8.65 billion at the end of 2012 to $2.5 billion currently, while Nigeria’s external reserves dropped 11 per cent from last year’s peak of $48.85 billion, recorded in May.
The Federal Government retained revenue for the fourth quarter of 2013 at N822.19 billion, was lower than both the proportional budget estimate and the receipt in the preceding quarter by 33 percent and 17.46 percent respectively, according to Central bank of Nigeria data. Central Bank of Nigeria (CBN) reports show that the allocation of N672.75 billion to states in the fourth quarter was below the quarterly budget estimate and the level in the preceding quarter by 9.0 and 6.6 percent respectively.
Further breakdown shows that, at N566.18 billion, receipts from federation account constituted 84.2 percent of the total, indicating a decline of 9.7 percent and 13.3 percent below the level of the preceding quarter of 2012 respectively.
In the face of dwindling allocations to states from the federation account, states that have over the years depended largely on this source for running their operations may consider borrowing. But there are concerns over how the debts would be paid since many states in the country have poor internally generated revenues (IGR) and may face difficult times if these federal allocations continue to take a downward trend. IGR data released by the National Bureau of Statistics (NBS) are instructive,
The NBS data shows that for the South-West region, Lagos led with N219.2 billion, South-South: Rivers N66.2 billion, South-East: Ebonyi N14 billion, North-Central: Benue N8.4 billion, North-West: Kaduna N11.5 billion, and North-East: Adamawa N4.6 billion.
Collectively the six south-western states of the federation generated N265.2 billion and of this total, Lagos contributed the lion’s share, with 95 percent (N219.2 billion), compared with Ekiti with just 1 percent (N3.78 billion).
Rivers State, one of the states in the south-southern part of the country came second after Lagos, with an IGR of N66.28 billion followed by Delta with N45.56 billion.
While it is disturbing that Nigeria’s revenues are dwindling, largely as a result of brigandage and poor management in the petroleum sector, we believe that the unfolding trend of dwindling federation revenues is a strong warning signal both for the federal government and the state governments, pointing to the urgent and ultimate need to diversify Nigeria’s revenue base away from crude oil sales.
For the state governments that remain laid-back, counting on the huge allocations they get from the federation account, it is the dawn of an era of financial re-engineering, focusing on IGR sources that has since been neglected.
The business of financing government shouldn’t be the way it has been. Those who seek to govern whether in the states or at the federal level should know that the business of government is beyond collecting and sharing. Rather, it’s about harnessing all resources at disposal towards efficient governance, reducing waste, profligacy and saying NO to kleptocracy.