Wednesday, May 04, 2022 /  12:55 PM / by FBNQuest Research/ Header Image Credit:  The Conversation

The gross monthly distributions by the Federation Account Allocation Committee (FAAC) to the three tiers of government amounted to NGN726bn (c.USD1.7bn) in April  (from March revenue). The gross payout for April represents an increase of c.NGN31bn or around 4% from the previous month’s gross payout. Relative to the previous month’s payout, the higher disbursement was mainly due to increases of NGN92bn and NGN27bn in statutory revenue and VAT respectively. Although figures were not provided, the communique noted higher revenue receipts from petroleum profit tax, oil and gas royalties, import and excise duties and companies income tax compared with the previous month.  

Of the distributed sum, the federal government received NGN277bn, NGN41bn higher than it received the previous month. 

Disbursements to the 36 states (ex-13% derivation), and local governments increased by NGN37bn and NGN27bn to NGN227bn and NGN168bn respectively. The 13% derivation allocation for oil producing states also grew by almost NGN30bn to NGN53bn. 

Local newswires have widely reported that again, the NNPC failed to make contributions to the joint revenue pool operated by the three tiers of government, implying that the corporation has yet to make remittances this year. 

If we add the estimated value shortfall of c.NGN672bn that it intends to recover from this month’s FAAC disbursements (i.e. from April revenue), the amount would add up to over NGN1.3trn for the first four months of the year.   

The figure implies an annualised sum of c. NGN3.9trn, close to the NGN4trn estimated in the revised budget for 2022). 

Put in proper context, the sum is c23% of the entire expenditure budget or around 2% of 2021 GDP. This is an unwieldy subsidy figure for a country with limited revenue resources. 

Subsidies are clearly overstated due to a lack of transparency about the exact volume of premium motor spirit (PMS)/ gasoline consumed domestically, as well as petroleum product smuggling to neighbouring countries. 

The removal of PMS subsidies has been dropped from the FG's agenda this year for political reasons. However, given fiscal distortions, we continue to urge the government to take the tough but important step of fully liberalising PMS prices as soon as possible.