June 29, 2021 / 08:49 AM / By FBNQuest Research / Header Image
The gross monthly distribution by the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to NGN606bn (USD1.48bn) in June (from May revenue). This was a decline of NGN11bn on the previous payout. From patchy coverage in the local media, we deduced that the distribution of VAT was marginally higher, and that the take from companies' income tax, petroleum profit tax (PPT), import duty and oil and gas royalties was lower. State governments received a total of NGN221bn, which included NGN27bn for those states that benefit from the 13% derivation formula.
The headline figure is made up of NGN358bn in gross statutory distribution, NGN168bn from the VAT Pool, a NGN2bn fx adjustment and an oil and non-oil 'augmentation' of NGN50bn and NGN20bn respectively. Again, there has been no official explanation as to why the committee chose to top-up the distribution with the augmentation. Perhaps, this was done to compensate for the Nigerian National Petroleum Corporation (NNPC)'s reduced contribution to the federation account.
The NNPC remitted a marginal net sum of NGN29bn to the FAAC in May, compared to a zero-contribution in the previous month. The corporation continues to shoulder oil subsidy payments, which it disclosed to be up to NGN150bn monthly. We understand that the NNPC is set to deduct another NGN114bn from oil revenues in June to pay for PMS subsidy.
The trend in total FAAC distributions has declined from an average of NGN710bn in 2018 to NGN685bn in 2019 and NGN636bn last year.
Current levels are far short of states' aggregate needs, which averaged NGN351bn per month in 2018 and NGN396bn in 2019 (i.e. about 70% more than what they have just received). It would not even have covered their salaries and pensions in aggregate.
A small number of states, led by Lagos, can still meet their spending commitments, including capital items, at these reduced levels of FAAC payout because their internally generated revenue figures are material. For Lagos state, this revenue represented 47% of its total revenue in H1 '20. The ratio was higher previously.
Revenue allocations (gross) by the FAAC (NGN bn)
Sources: Local media; FBNQuest Capital Research