Wednesday, November 26, 2014 8:33 AM / FBN Capital Research
The communiqué following this week’s meeting of the monetary policy committee (MPC) unusually gave some advice to sub-national governments.
It urged them to reduce their dependence on the monthly distributions out of the federation account by boosting their collection of internally generated revenue (IGR).
We endorse the committee’s sentiments wholeheartedly while noting that the project is long term. The state governments are being squeezed by the decline in oil revenues and have been warned by the CME that withdrawals from the excess crude account this year will be capped at US$2bn from the current balance of US$4.1bn (Good Morning Nigeria, 20 November 2014).
In the run-up to the elections due in February, when there will be 18 vacant seats out of the 28 gubernatorial contests, these are unwelcome developments.
The communiqué noted “unprecedented” growth in IGR in some states in 2013. The partial data for 20 states recently released by the NBS show growth of 75% in Lagos, 72% for Yobe and 66% for Enugu.
According to the DMO series, the most indebted states tend to be those with a track record in collecting IGR, led by Lagos and several oil-producing beneficiaries of the derivation formula (see chart). The series excludes external borrowings, which are guaranteed by the FGN, and naira bond issuance.
Nonetheless, a good number have limited potential for gathering legitimate IGR, and still have cost bases to service.
Their borrowing costs are set to rise due to the tightening of monetary policy and, in many cases, the electoral calendar.