Fiscal Challenges for Delta State

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Monday, October 24, 2016/ 10.15am /FBNQuest Research

Given the swings in the Federation Account Allocation Committee payouts over the past few months, the need for states to bolster their internally generated revenue (IGR) cannot be overemphasized. Lagos State sits as the poster child with an estimated IGR of N271.4bn in 2014; this represented 67% of its total revenue.

In Lagos, economic activity is skewed towards services. However, for states in the northern region, agriculture pops up as the top category while a few states in the eastern region have huge potential to become light manufacturing hubs.

At a recent briefing we attended in Lagos which focused predominantly on Delta State, we gathered some data on its fiscal performance and projections. This information did not include its assumptions on, for example, federal and state GDP, inflation and oil production. In 2015 the state’s total revenue declined by 36% to N157.4bn.

Since mid-2014 there has been a significant drop in the statutory allocation from the FGN upon which Delta State relies heavily. Last year, its share of statutory allocation to total revenue stood at 76%, compared with 83% recorded in 2014.

Meanwhile IGR also dipped. According to its state ministry of finance, IGR declined to N37.6bn in 2015 from N42.6bn recorded in the preceding year.

In 2014 total expenditure amounted to N294.8bn, with recurrent expenditure accounting for 62% of the total. For 2015 the data only captures total expenditure from January to August: this totaled N130.7bn, of which capital items expenditure accounted for just 12%.

We gather that the state’s capital expenditure slumped by 74% to N29bn as at August 2015, when compared with N112bn recorded in 2014. Additionally, the budget deficit of N49.9bn recorded in 2014 had grown to N59.2bn as at August 2015.

Based on the state’s medium term fiscal framework, this year IGR is estimated to reach N46.8bn, and then experience steady increases to N51.4bn and N56.6bn in 2017 and 2018 respectively.

Given the current economic downturn, we did expect to observe more prudence in the projections. It seems that overhead costs are set to increase. The estimate for this year is N49.4bn, rising steadily to N54.5bn in 2018.

The state government is committed to attracting investment. It has produced policy frameworks geared towards agriculture, urban renewal, education and health.

However, the state has been badly impacted by the pipeline vandalism in the Niger Delta. If security is not improved, the flow of inward investment is likely to be minimal.

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