The total amount disbursed by the Federation Account Allocation Committee (FAAC) to the 36 states in Nigeria rose to the highest in at least seven years in 2023, data compiled by BusinessDay shows.
The latest data from the National Bureau of Statistics (NBS) revealed that FAAC shared a total of N16.04 trillion to the three tiers of government, a 37.3 percent increase from N11.7 trillion in 2022.
The bulk of the revenue shared at FAAC meetings every month by the federal, state, and local governments are earnings from oil exports, taxes, and other statutory allocations.
“FAAC is dominated by oil proceeds, and a weaker foreign exchange rate, will give more revenue in naira. The FAAC increase is not due to improved economic fundamentals,” Israel Odubola, a Lagos-based research analyst, said.
He added that the recent change in FX rate computation, which places a dollar to almost N1,500 led to the notable increase in FAAC.
A breakdown of the total FAAC data shows that the federal government received N4.06 trillion, up from N3.92 trillion and the state governments got N3.53 trillion as against N2.76 trillion. Disbursements to local governments also increased to N2.61 trillion from N2.04 trillion.
Since President Bola Tinubu announced petrol subsidy removal during his inauguration on May 29, pump prices have tripled to over N600, while the value of the naira has plunged following the floating of the currency.
In June, the Central Bank of Nigeria merged all segments of the FX market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.
The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The official exchange rate fell from N463.38/$ to N1,418.8/$ as of February 7. At the parallel market, the naira is now pushing above N1,500/$ from 762/$.
Revenue from exchange rate gain jumped to N364.9 billion in December from N0.64 billion in June.
“The devaluation has increased government revenue in terms of FAAC allocation. It has also been able to reduce the gap in government revenue in the budget,” Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited, said.
He added that if the funds are rightly used, it will impact the economy, especially for the states.
During the public presentation of the country’s 2024 budget proposals in November, Abubakar Bagudu, minister of budget and economic planning, said the federal government achieved N8.65 trillion in revenue in the first nine months of 2023 as against its pro-rata target of N8.28 trillion.
He said N1.42 trillion was generated from oil revenues, while non-oil revenues totalled N2.50 trillion.
Although the reforms have increased revenue for the government, it has also increased the hardship for people as the inflation rate has accelerated to the highest in at least 20 years.
According to the NBS, the headline inflation rose to 28.92 percent in December from 28.20 percent in the previous month. Food inflation, which constitutes 50 percent of the inflation rate, rose to 33.93 percent from 32.84 percent.
“Economic conditions in Nigeria were challenging in 2022, as a depreciated local currency impacted inflation. However, conditions worsened in 2023 as demonetisation policies and fuel price hikes exacerbated inflation,” analysts at Euromonitor International said in a recent report.
They added that with local consumers spending more on fuel, further rationing and the search for substitute foods increased.
“Every increase in disbursement should go to the primary sectors of the economy that have highest potential for growth, especially health, education and other forms of infrastructure that will make businesses more viable,” Uchenna Uzo, professor of marketing and faculty director at Lagos Business School, said.
He added that the state and local level should have a higher increase in investment because that is where transformative change and impact can happen faster than the federal one.
Last year, BudgIT, a civic organisation driven to make the Nigerian budget and public data more understandable and accessible, said: “State governments’ recurrent costs have increased significantly over the years with only a small portion of collected revenue and loans dedicated to meet capital.”
“This spending pattern is not sustainable as this has opened gaps in providing quality healthcare services and educational systems, thus slowing down social development as well as growth in other key areas of the economy,” BudgIT said in its report titled ‘Patterns in States’ Expenditure’.
The World Bank’s latest Nigeria Development Update report revealed that rising inflation and sluggish growth in Africa’s biggest economy increased the number of poor people to 104 million in 2023 from 89.8 million at the start of the year.
“The impact of this inflation is especially hard on the poor and vulnerable. The Government has initiated targeted cash transfers to mitigate some of the impact on the most vulnerable households. In addition, a holistic approach to reducing inflation, including through tighter fiscal and monetary policies, is also needed,” the report said.