• Friday, July 12, 2024
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BusinessDay

Financial crisis looms in states as federal allocation, IGR shrink

Nigerian-states

Most states may fall into financial crisis sooner as their Internally Generated Revenue (IGR) remain a far cry from their annual budgets at a time when the monthly Federal account allocation committee (FAAC) disbursements –which they hugely depend on- also continues to shrink.

Data from the National Bureau of Statistics indicate that the Federation Allocation to the federal, state and local government declined for the second consecutive month (September and October 2019).

BusinessDay analysis of the 2019 budget size of some states as against internally generated revenue (IGR) Q1-Q3 (Jan-Sept), shows that Cross River state has a budget size of N1.148 trillion while its IGR for the period amounted to N19.941 billion representing 1.73 percent of the budget; Bayelsa state with a N299 billion budget had its IGR at N9.065 billion representing 3 percent of the budget.

Kastina state budget stood at N202.4 billion while its IGR for the period stood at N6.417 billion representing 3 percent of the budget, Taraba state had budget of N146.1 billion while the IGR stood at N4.782billion representing 4.3 percent of the budget; Borno state budget stood at N144.7 billion as against IGR at N5.487 billion representing 3.79 percent of the budget.

Adamawa state budgeted N244.7 billion while its IGR of N6.384 billion represents 2.60 percent of the budget; Gombe state has a budget size of N122.4 billion and IGR at N3.347 billion representing 2.73 percent; Kebbi state budgeted N151 billion but recorded an IGR of N5.868 billion representing 3.88 percent of the budget; while Kogi state budget is N146.73 while its IGR stood at N9.213 billion representing 6.28 percent.

The percentage of Net FAAC allocation disbursed in the first three quarters 2019 (Jan-Sept), as compared to the states’ budget shows that Cross river state received a total of N27.28 billion for the period representing 2.62 percent of its budget, Bayelsa state received N102.43 billion representing 34.26 percent of its budget, Kastina state received N47.56 billion representing 23.50 percent of its budget, Taraba state received N34.99 billion representing 23.84 percent and Borno state received N46.30 billion representing 32 percent respectively.

Similarly the Net FAAC allocation disbursed to Adamawa, Gombe, Kebbi and Kogi states in the first three quarters 2019 (Jan-Sept), stood at N36.29 billion representing 14.88 percent, N30.81 billion or 25.17 percent, N39.79 billion or 26.35 percent and N39.21 billion representing 26.72 percent respectively.

However, states with higher IGR include; Lagos state with a budget of N873.5 billion and IGR of N292.223, River state with a  budget size of N480.41 billion and N97 billion IGR, Ogun state budget stood at N400.32 billion and IGR of N50.103 billion and Delta state with a budget size of N390 billion and IGR at N49.530 billion respectively.

Gabriel Okeowo, principal lead, budgIT Nigeria speaking to Businessday faulted this trend and called on the state governments to figure out how to harness their collective strength and establish single focus investment products so as to become fulcrum of productivity.

Okeowo said “It is quite alarming to see that most states are not sustainable with the internally generated revenue, to this end they have to depend on allocations from the federal government which is gradually going down.

“There is an urgent need for these states to bring down the rate of recurrent expenditure and spend more on sectors that are able to generate revenue else they will move into greater debt and be rendered insolvent.

“We have explored broad line data on states’ fiscal performance, availability of fiscal documents and also issues around health metrics in states. Our belief is that Nigeria needs to create incentives for states to expand growth and earning potential, thereby activating resources needed to improve the state of health, education and access to opportunity.”

A study of the report shows that Lagos leads the fiscal sustainability index, followed by Rivers and Akwa Ibom states while most states run huge recurrent expenditure above their IGR despite state size and population.

Okeowo said “Across the board, states should keep their recurrent costs lean to free up more spending for social and economic infrastructure. Lagos, Rivers and Akwa Ibom are the only states that can meet their recurrent expenditure without dependence on government allocations.”

Yue Man Lee, World Bank Senior Economist, stressed the need for state governments to increase investments in human capital adding that the nation’s public expenditure is still very small in relation to its economy.

“The low level of public investment in human capital especially in the health and education sector contributes a great deal to poor human development outcomes across the country, and the state has a role to play in changing this narrative,” she told BusinessDay.

She further said that the total state expenditure has been constrained by the lack of growth of internally generated revenue in the states and that over the years, total state debt has also doubled and remained at elevated levels leading to states not being able to pay pensions, workers as well as contractors.

She said, “The way forward is to promote fiscal transparency and accountability, ensure availability of budget implementation report, strengthening sources of IGRs, and promote spending in credible and realistic budget.”

According to the National bureau of statistics data, the Federal Inland Revenue Service (FIRS) has contributed nearly 60 percent of the revenue disbursed over the past 3 months.

Experts are further concerned that issues around weak IGR in states continue to persist as most of their economies are tied to informal trade and skeletal industrial output thereby becoming dependent on FAAC allocation.

Albert Okoye, an Abuja based financial analyst faulted the nation and states reliance on revenue from oil sector saying that the decline in FAAC allocations points to the unpredictable and volatile nature of oil revenue.

“While oil will remain a key source of government revenue, the state governments should identify more innovative means of sourcing finance including partnering with the private sector, in the short to medium-term”.

“It is indeed worrisome to note that taking the entire FAAC disbursements for the first three quarters of 2019 as a percentage of state 2019 budgets, less than 10 states were discovered to be above 30 percent and most states depend on FAAC disbursements to meet most of the needs of the state.”

 

 Cynthia Egboboh, Abuja.