FG’s touted blockage of leakages fails to lift revenue profile

Nigerians are facing a ‘new normal’ of  cash crunch from a more assertive Federal Government as the aggressive move towards plugging fiscal loopholes occasioned by falling oil prices has failed to lift the revenue profile of the largest economy in Africa.

Analysts believe that President Muhammadu Buhari’s much touted blocking of leakages has not achieved the desired aim of lifting the revenue profile of the country, as the net Federal Allocations Accounts Committee (FAAC) revenue to the economy between May, when he assumed office  and September, was N2.6 trillion.

This is against N3.5 trillion revenue generated within the same period of the preceding year.

“Our expectation was that based on campaign promises, the administration should have exceeded the target of same period last year, despite the fall in oil price. We are yet to see action matching promises in the area internally generated revenue, unless if there is money somewhere that government is not telling us,” says Friday Ameh, energy analyst.

In May this year, the revenue was N409.4; June, N869.8billion; July, N496.6billion, August, N418.9 and September was N380.5 billion, making a total of N2.6 trillion.

May 2014, revenue was N825.9billion; June, N741.1billion; July, N639.7 billio; August, N637.8 billion and September, N611.3 billion, making a total of N3.5 trillion.

Ayodeji Ebo, head investment research, Afrinvest said “Worthy of note is the fact that the Buhari-led administration, with a vision to clamp down on corruption has been able to come with some initiatives to block leakages from revenue remittances, as well as expenditure outlays of MDAs, as typified with the implementation of the TSA policy.

“However, policy-wise, not much has been done to actually diversify the government revenue base from oil, even though savings could have been made from the expenditure side. The bearish sentiment in the oil market – which is the government’s major source of revenue – is yet to turn, and given that, revenue has persistently declined since the third quarter of 2014 and there has been a resultant dip in the monthly Federal Allocation that is shared across the three tiers of government.

Federally collected revenue for the second quarter of 2015 was N1.5tn which was 18.0% and 43.1% lower than Q1:2015 and Q2:2014 federation account revenue. FAAC allocation for the month of September, paid in October (the most recent) stood at N380.4 billion which signifies a 10.0% decline from N418.9 billion in the previous month.”

Said Ebo, “What is mainly needed now are policies to diversify the government’s revenue base at the federal and states level. States and local government authorities’ need to develop their internally generated revenue capacity in order to make up for the shortfall from their FAAC allocations. In addition, the states need to re-assess their recurrent expenditure in light of the dwindling revenue (FAAC).”

Bolade Agbola, executive director Cashcraft Asset Management limited, recalled that three of the key bases on which Nigerians voted for President Buhari are security,corruption and the economy, but added that both security and corruption seem to be having some traction but nothing is apparently happening on the economy, except some monetary policy initiatives that have not addressed the dwindling inflow of foreign exchange.

“There is no doubt that economic activities are slowing down in response to the declining petro- dollar inflow as Brent crude trades at below $50 per barrel. The  impact of reduced economic activities is the continuous slide in the collectible federal revenue, as imports decline while corporate performance remains tepid, resulting in declining tax payment to the government .The economy has to be jump-started again, through infrastructure financing  for it to regain its vigor,” says Agbola.

The current cash crunch has also affected the stock market where the All Share Index (9ASI) and Market Capitalisation have been experiencing a downward trend due to negative sentiments.

According to the analysts’ daily report for last week Tuesday, the market sunk to 36- month low.

The analysts said, “At the close of trade today, following a decline of 0.1%, the Nigerian Equities market hit its lowest level in three years at 27,287.89pts, thereby driving YTD return further south to -21.3%. Market capitalisation equally lost N9.0bn to close at N9.4tn.”

John Omachonu