Tuesday, March 01, 2022 / 11:18 AM / by FBNQuest Research / Header Image Credit: The Guardian Nigeria
The gross monthly distribution by the Federation Account Allocation Committee (FAAC) distributed to the three tiers of government amounted to NGN575bn (c.USD1.62bn) in February (from January revenue). This represents a decrease of c.NGN125bn from the previous month's payout. The decline was due to significant reductions in Companies Income Tax (CIT), Petroleum Profit Tax (PPT) and Oil and Gas Royalties. Of the distributed sum, the federal government received around NGN205bn or a decrease of 27% from the prior month. When we include the 13% derivation for oil-producing states, the gross distributions to state governments shrunk by 7% m/m to NGN238bn. The local governments' share fell by c.20% by NGN8m to NGN132bn.
The headline figure is made up of NGN291bn in gross statutory distribution which was down 43% y/y, NGN178bn from the VAT pool, NGN100bn in non-oil revenue, and an exchange gain of NGN5bn.
According to the committee, the balance in the Excess Crude Account (ECA) was stable at USD35.4m.
Another plausible explanation for the sharp m/m decline in revenues may be revenue deductions by the NNPC due to value shortfalls (for subsidy claims). In its FAAC report for January 2022, the NNPC stated that it would recover a value gap of NGN127bn from the February FAAC allocations (from January revenue). It is unclear if this deduction was made.
The value shortfalls or subsidy claims which have grown increasingly each month with rising crude oil prices have underpinned the precarious fiscal situation of the FG and state governments.
Last month, the FG suspended the removal of subsidies on premium motor spirit (PMS) for another 18 months.
Following the rise in crude oil prices after Russia's invasion of Ukraine last week, subsidy claims by the NNPC are likely to be significantly higher than NGN3trn approved by the FG in January of this year.
The scale of subsidy payments is quite cumbersome for a country with a sizable fiscal deficit, rapidly growing debt, and a very high debt-service burden.
Overall, we believe that the FG's decision to postpone the subsidy removal is a squandered chance to relieve the fiscal strains. It remains to be seen how the FG intends to manage the heavy subsidy burden.