Oil-rich states face salary crunch without FAAC

…14 states can’t survive outside allocations

Bayelsa, Delta, and Akwa Ibom states are facing the prospect of financial hardship and potential difficulties in paying salaries without the critical allocation from the Federation Account Allocation Committee (FAAC) despite their abundant resources.

Data sourced from a new report released by BudgIT showed 14 states, including oil-rich states like Bayelsa, Akwa Ibom, and Delta, are heavily dependent on FAAC allocations, with over 70 percent of their total revenue coming from this source.

While oil production in oil-rich states is a major contributor to Nigeria’s oil revenue, their reliance on FAAC allocations for a significant portion of their income has left them vulnerable to fluctuations in oil prices and production levels.

“If FAAC disappears today, these states will struggle to pay salaries, pension and gratuity. This is because they rely on FAAC for at least 70 percent of their total revenue,” BudgIT’s 2024 “State of States” report titled “Moving Healthcare Delivery from Suboptimal to Optimal said.

The civic-tech organisation has reported a 31.2 percent year-on-year increase in the combined revenue of Nigeria’s 36 states, reaching N8.66 trillion, a development that reflects ongoing reliance on funds from the Federation Account Allocation Committee (FAAC) to cover operational costs.

BudgIT said FAAC allocations alone represented at least 55 percent of the total revenue for 32 states, exposing their vulnerability to fluctuations in federal distributions.

The report highlighted that gross FAAC allocations rose by 33.19 percent, increasing from N4.05 trillion in 2022 to N5.4 trillion in 2023, and contributing to 65 percent of the revenue growth for the states.

“This increase is indicative of the additional revenue accrued to states, albeit moderate, due to the discontinuance of the petroleum subsidy,” BudgIT report said.

Despite this influx, the report cautions that, without these transfers, many states would struggle to meet even basic operational costs. It revealed that 34 states depended on FAAC transfers for at least 62 percent of their recurrent revenue, with 21 states relying on federal sources for over 80% of their income.

Specifically, 32 states leaned on FAAC for at least 55 percent of their total revenue, with 14 of these states relying on it for at least 70 percent.

Additionally, for recurrent revenue, FAAC accounted for at least 62 percent in 34 states (excluding Lagos and Ogun), while 21 states drew over 80 percent from federal transfers.

“The picture painted above buttresses the over-reliance of the state governments on federally distributable revenue and accentuates the vulnerability of the state governments to crude oil-induced shocks and other external shocks,” BudgIT report said.

BudgIT, the civic-tech organisation, expressed concern over the sustainability of this dependency, particularly as states face rising debt burdens.

For instance, Total state debt climbed by 38.1 percent in 2023, reaching N10.01 trillion, partly due to a 4.1 percent increase in foreign debt following exchange rate liberalisation.

The BudgIT report also revealed a 21.19 percent rise in aggregate state expenditure in 2023, totaling N9.78 trillion. Personnel costs rose by 12.9 percent, while overhead expenses surged by 26.75 percent.

Read also: Thirty-two states got most of their revenue from FAAC – Report

Additionally, capital expenditure increased by 37.3 percent, indicating efforts to drive development despite fiscal constraints. Rising debt pressures are further aggravated by exchange rate instability, with total state debt growing from N7.25 trillion in 2022 to N10.01 trillion in 2023.

While domestic debt saw an 11.4 percent rise, foreign debt increased by 4.1 percent, reaching $4.61 billion. Lagos held the highest share of foreign debt at $1.24 billion (26.9 percent of the total), while states like Kaduna and Edo, which have significant foreign-denominated debt, face heightened exposure to currency depreciation.

The report also draws attention to a healthcare infrastructure deficit. In 2023, while N2.3 trillion was allocated to the health sector, actual spending amounted to only N1.39 trillion (58.16 percent), underscoring a broader issue with resource allocation.

Nine states, including Edo, Ogun, and Zamfara, reported no spending on medical equipment, with limited investments in hospital construction and rehabilitation totaling just N104.27 billion.

The healthcare system is further strained by a severe shortage of medical professionals, with a doctor-to-patient ratio of 4:10,000, far below the World Health Organisation’s recommended 1:600 ratio.

Taraba and Bauchi are particularly affected, with Taraba’s ratio at one doctor per 17,959 residents, and Bauchi unable to staff 90 percent of its health facilities with a general medical doctor.