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Wednesday, October 14, 2020, / 02:25 PM / By Proshare Research
/ Header Image Credit: Infocheck
A drop in federation account allocation
committee (FAAC) monthly distributions in H1 2020 has put the various state
governments in different phases of financial distress. States with low
internally generated revenues have seen themselves besieged to meet recurrent
obligations as worker's salaries and institutional running costs have become
deep rivers to drown. Indeed, with COVID-19 still dislocating domestic local
supply chains in 2020, the outlook for state finances remains dim.
But not everything has tumbled down the
hill as a few states have managed to pull magic tricks to grow personal income
(PAYE) and other taxes despite the pains of the pandemic. States appear to have
recorded increases in components of their IGR based on the peculiarities of
their economies. For example, Lagos state recorded a rise in the PAYE component
of its IGR by +2.11%, MDAs revenue grew by +6.51% while the state recorded a decline in other taxes (-24.85%) and direct assessment (-10.65%). On the other hand, Imo state recorded a decline in
PAYE by -33.99%, direct assessment -81.54%, and road taxes by -74.45% while it recorded growth in other taxes +74.35%, and MDA revenues +335.37%.
Diving into the financial status of
other states shows a trend of low IGR and high FAAC-dependence. States with large
FAAC to revenue ratios in H1 2020 include Bayelsa state 92.48%, Jigawa state
89.94%, Niger state 86.63%, Yobe state 85.72%, and Adamawa state 85.67%. On the
other hand, only six (6) sub-nationals recorded IGR to revenue ratios above 40%
in the last half-year with Lagos state leading the pack. The six (6)
sub-nationals with the highest IGR to revenue ratio in H1 2020 were Lagos state
80.34%, Ogun state 57.75%, FCT 51.58%, Rivers 46.24%, Oyo 41.73%, and Osun
state 40.56%. The high dependency on FAAC by sub-nationals for sustainability
necessitates the need for creative thinking to bolster economic growth.
Reports from the national bureau of
statistics (NBS) show a decline in total IGR generated by all the 36 states in
the country and the FCT by -11.7% in H1 2020. The total IGR generated by the 36 states of the federation and
the FCT slumped to N612.87bn in H1 2020 from N693.91bn in H1 2019. While the Q2
2020 IGR figure dipped to N259.73bn from N353.14bn posted in Q1 2020 which reflected
negative growth of -26.5% quarter-on-quarter (Q-o-Q).
Indeed, twenty-five (25) states including FCT recorded a decline in IGR in H1
2020 while eleven states (11) recorded an increase.
The geopolitical region with the
highest internally generated revenue in H1 2020 was the South-West region with an
IGR of N283.06bn while the geopolitical region with the lowest comparative IGR number
was the North East region with an IGR of N26.65bn in H1 2020. Four geopolitical
regions recorded a decline in their IGR in H1 2020 while two geopolitical
regions recorded an increase in their IGR in H1 2020. North Central, North
West, South-South, South West region recorded a decline in H1 2020 by -20.84%, -24.58%, -18.60%, and, -4.03% respectively. While the North East and South East
recorded an improvement in IGR in H1 2020 by +7.6%, and +4.19% respectively (see Chart 1).
Chart 1: Geopolitical Regions IGR H1 2020 (N'bn)
Source: NBS, Proshare Research
IGR Numbers in H1 2020 -A Field Trip Across Regions
South West
Lagos recorded the highest IGR of N204.51bn
in the region while Ekiti state recorded the lowest IGR of N3.21bn in H1
2020. All the states in the South West region
except for Oyo state recorded declines in their internally generated revenue in
H1 2020. The states in the region with the highest percentage decline in IGR in
H1 2020 were Ekiti, Ondo, and Ogun state with declines of -36.44%, -28.53%, and -19.95% respectively. On the other hand,
Oyo state recorded an improvement in its IGR in H1 2020 by +25.89% as its IGR increased from N14.06bn in H1 2019 to N17.7bn
in H1 2020 (see Chart 2).
Chart 2: South West IGR H1 2020 (N'bn)
Source: NBS, Proshare
Research
North Central
The FCT recorded the highest IGR of
N35.31bn in the region while Niger state recorded the lowest IGR of N4.02bn in
H1 2020. Five (5) sub-nationals in the region recorded a decline in IGR in H1
2020 while two (2) sub-nationals recorded an improvement in IGR in H1 2020. The
five sub-national that recorded a decline in IGR were Niger state -55.97%, Benue -55.89%, Kwara state -41.83%, FCT -8.71%, and Plateau -0.14%.
The two sub-nationals that recorded an
improvement in IGR were Kogi state +11.23%, and Nasarawa state +21.90% (see
Chart 3).
Chart 3: North Central IGR H1 2020 (N'bn)
Source: NBS, Proshare
Research
North East IGR H1 2020
In the North East region, four (4)
states recorded an improvement in IGR in H1 2020 while two (2) states recorded
a decline in IGR in H1 2020. States that recorded improvement in IGR include
Borno +37.24%, Gombe +81.34%, Taraba +24.16%, and Yobe +77.38%.
The two states that recorded a decline
in IGR in H1 were Adamawa -25.15%, Bauchi -30.47% (see Chart 4).
Chart 4: North East IGR H1 2020 (N'bn)
Source: NBS, Proshare
Research
South-South IGR
In the South-South region, Rivers state
recorded the highest IGR of N64.59bn in H1 2020 while Bayelsa state recorded
the lowest IGR of N5.39bn in H1 2020. All states in this region a decline in
IGR in H1 2020. The state with the highest percentage of decline in IGR in H1
2020 was Cross Rivers state which declined by -51.88% while Bayelsa state recorded the least decline in IGR
by -8.33%
(see Chart 5).
Chart 5: South-South IGR (N'bn)
Source: NBS, Proshare
Research
North West IGR H1 2020
Kano state recorded the highest IGR of
N17.51bn in North West region in H1 2020 while Jigawa state recorded the lowest
IGR of N3bn in the region in H1 2020.
All states in the North West region
except Katsina state recorded a decline in IGR in H1 2020. The state's decline
in IGR was as follows Jigawa -44.13%, Kaduna state -35.04, Kano state -5.66%, Kebbi state -7.19%, Sokoto state -61.92%, and Zamfara state -1.66%. On the other hand, Katsina recorded an improvement in its
IGR of +15.25% in H1 2020 (see Chart 6).
Chart 6: North West IGR H1 2020 (N'bn)
Source: NBS, Proshare
Research
Thinking Outside the Metal Box
To
wriggle outside the problems states will need to be imaginative, creative, and
strategic. A few things states might need to do would include:
Illustration 1: Lagos; Reimagining The Future
Going forward what is clear is that
normality will no longer look the same. States in Nigeria will need to nudge
themselves into new mind frames and elevated headspaces to build fiscal
frameworks that would not only tackle the immediate challenges of recurrent
fiscal funding but also take care of the capital requirements of the future.
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