Urgent need to bolster states' IGR

Proshare

Thursday, February 26, 2015 9:10 AM / FBN Capital Research
                                               

 The CBN data for 2013 reveal that internally generated revenue (IGR) provided 15.3% of the total revenue of the 36 states and the Federal Capital Territory, unchanged from the previous year. The aggregate IGR grew by 7% to N586bn (US$2.9bn) from N548bn in 2012. Again, Lagos emerged as the leading state achieving an IGR/total revenue ratio of 53% while Kano, Ogun and Rivers achieved 35%, 31% and 26% respectively. We stick with the CBN series for ease of comparison although it is dated and several individual states show different (generally higher) percentages.                                                          


States’ successful efforts to boost IGR leave them better placed to pursue their capital programmes without overdependence on the oil-driven monthly distributions from the FAAC, and to tap the domestic bond market.

According to the DMO, states’ domestic debt (excluding bonds) at end-2014 amounted to N1.71trn. Although Lagos has steadily generated over half of its revenue internally, it is the biggest debtor with a total of N187bn.
 

The national minimum wage of N18, 000 per month approved in 2011 continues to strain states’ budgets. Anecdotal evidence suggests that salary arrears have developed in some states as a result of reduced FAAC distributions.



The slide in the oil price since mid-2014 has reinforced the need for state governments to increase their collection of IGR. States may consider diversifying their revenue base by encouraging economic activity in sectors such as solid minerals and fisheries.
 

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