Declining Federal Allocation Mounting Pressure on the States

Proshare

Tuesday, January 19, 2016 08:56 AM / FBNQuest Research

The total monthly payout by the Federation Account Allocation Committee (FAAC) to the three tiers of government in December (from November revenues) slumped to N370bn (US$1.86bn) from N474bn the previous month. We wonder how the majority of state governments are managing.

In total, their payout amounted to N101bn (before charges) in December plus a further N26bn for the nine oil-producing states from the 13% derivation formula. In 2013 their total spend was N4.11trn including N880bn on personnel alone.We use the CBN data for 2013, which is the most recent in aggregate form.

The ratio for personnel costs/total revenue excluding VAT and internally generated revenue (IGR) is a useful guide to states’ vulnerability to declining FAAC payouts.

It exceeded 100% for one state (Kano) and 50% for a further five. Jigawa’s was comfortably the lowest, at 5.0%. To reinforce our point, we recall that the price of Bonny Light in 2013 averaged US$111/b.   

States can reduce their vulnerability by increasing their IGR although the potential varies enormously within the federation. 



The recent refinancing of states’ bank loans totaling N575bn provides a crumb of comfort. The DMO calculated that states’ debt service burden had fallen by between 55% and 97% as a result.

The distribution of December revenues may well be announced at the end of this week. Given the latest downward leg in the oil price, the three tiers should be bracing themselves for more bad news. The balance in the excess crude account stands at just US$2.3bn.


Related NEWS:

1.       A pick-up in the FAAC payout in October 2015 – Dec 21, 2015

2.      Another fall in the FAAC payout – Nov 03, 2015

3.      Oil to blame for the lower FAAC payout – Sep 28, 2015

4.      Calm to return after TSA scramble -  Sep 17, 2015

5.      Oil-related decline in the FAAC payout – Aug 31, 2015

6.      On the ropes, off the ropes – Aug 10, 2015

7.      Unexplained rise in the FAAC distribution – Aug 05, 2015

8.     One state’s pursuit of investment and jobs – Jul 31, 2015

9.      Reports of a recovery in reserves – Jul 09, 2015

10.  Welcome stability in reserves – Jun 04, 2015

11.   Further decline in FAAC distributions – May 19, 2015

 

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