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Economy | State and Local Govts

The New Normal; States Scurry for Higher IGRs

Oct 14, 2020   •   by   •   Source: Proshare   •   eye-icon 2229 views

Wednesday, October  14, 2020, / 02:25 PM / By Proshare Research/ Header Image Credit: Infocheck


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A drop in federation account allocationcommittee (FAAC) monthly distributions in H1 2020 has put the various stategovernments in different phases of financial distress. States with lowinternally generated revenues have seen themselves besieged to meet recurrentobligations as worker's salaries and institutional running costs have becomedeep rivers to drown. Indeed, with COVID-19 still dislocating domestic localsupply chains in 2020, the outlook for state finances remains dim.

 

But not everything has tumbled down thehill 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 haverecorded increases in components of their IGR based on the peculiarities oftheir economies. For example, Lagos state recorded a rise in the PAYE componentof 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 inPAYE 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 ofother states shows a trend of low IGR and high FAAC-dependence. States with largeFAAC to revenue ratios in H1 2020 include Bayelsa state 92.48%, Jigawa state89.94%, Niger state 86.63%, Yobe state 85.72%, and Adamawa state 85.67%. On theother 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 state80.34%, Ogun state 57.75%, FCT 51.58%, Rivers 46.24%, Oyo 41.73%, and Osunstate 40.56%. The high dependency on FAAC by sub-nationals for sustainabilitynecessitates the need for creative thinking to bolster economic growth.

 

Reports from the national bureau ofstatistics (NBS) show a decline in total IGR generated by all the 36 states inthe country and the FCT by -11.7% in H1 2020. The total IGR generated by the 36 states of the federation andthe FCT slumped to N612.87bn in H1 2020 from N693.91bn in H1 2019. While the Q22020 IGR figure dipped to N259.73bn from N353.14bn posted in Q1 2020 which reflectednegative growth of -26.5% quarter-on-quarter (Q-o-Q).Indeed, twenty-five (25) states including FCT recorded a decline in IGR in H12020 while eleven states (11) recorded an increase.

 

The geopolitical region with thehighest internally generated revenue in H1 2020 was the South-West region with anIGR of N283.06bn while the geopolitical region with the lowest comparative IGR numberwas the North East region with an IGR of N26.65bn in H1 2020. Four geopoliticalregions recorded a decline in their IGR in H1 2020 while two geopoliticalregions recorded an increase in their IGR in H1 2020. North Central, NorthWest, 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 Eastrecorded 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)

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Source: NBS, Proshare Research

 

IGR Numbers in H1 2020 -A Field Trip Across Regions


South West


Lagos recorded the highest IGR of N204.51bnin the region while Ekiti state recorded the lowest IGR of N3.21bn in H12020.  All the states in the South West regionexcept for Oyo state recorded declines in their internally generated revenue inH1 2020. The states in the region with the highest percentage decline in IGR inH1 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 N17.7bnin H1 2020 (see Chart 2).

 

 

 

Chart 2: South West IGR H1 2020 (N'bn)

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Source: NBS, ProshareResearch

 

North Central

The FCT recorded the highest IGR ofN35.31bn in the region while Niger state recorded the lowest IGR of N4.02bn inH1 2020. Five (5) sub-nationals in the region recorded a decline in IGR in H12020 while two (2) sub-nationals recorded an improvement in IGR in H1 2020. Thefive 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 animprovement in IGR were Kogi state +11.23%, and Nasarawa state +21.90% (seeChart 3).

 

Chart 3: North Central IGR H1 2020 (N'bn)

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Source: NBS, ProshareResearch

 

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 recordeda decline in IGR in H1 2020. States that recorded improvement in IGR includeBorno +37.24%, Gombe +81.34%, Taraba +24.16%, and Yobe +77.38%.

 

The two states that recorded a declinein IGR in H1 were Adamawa -25.15%, Bauchi -30.47% (see Chart 4).

 

Chart 4: North East IGR H1 2020 (N'bn)

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Source: NBS, ProshareResearch

 

South-South IGR

In the South-South region, Rivers staterecorded the highest IGR of N64.59bn in H1 2020 while Bayelsa state recordedthe lowest IGR of N5.39bn in H1 2020. All states in this region a decline inIGR in H1 2020. The state with the highest percentage of decline in IGR in H12020 was Cross Rivers state which declined by -51.88% while Bayelsa state recorded the least decline in IGRby -8.33%(see Chart 5).

 

 

Chart 5: South-South IGR (N'bn)

 

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Source: NBS, ProshareResearch


North West IGR H1 2020

Kano state recorded the highest IGR ofN17.51bn in North West region in H1 2020 while Jigawa state recorded the lowestIGR of N3bn in the region in H1 2020.

 

All states in the North West regionexcept Katsina state recorded a decline in IGR in H1 2020. The state's declinein 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 itsIGR of +15.25% in H1 2020 (see Chart 6).

 

Chart 6: North West IGR H1 2020 (N'bn)

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Source: NBS, ProshareResearch

 

Thinking Outside the Metal Box

Towriggle outside the problems states will need to be imaginative, creative, andstrategic. A few things states might need to do would include:

  • Generate liquidity by liberating idle assets. Many states have some projects that have been abandoned but might be considered attractive to private sector investors. The projects could be sold to private interests on the best cost-recovery basis.
  • States could encourage companies to support infrastructural development projects by constructing the infrastructure and compensating investors with tax credits which they can charge off against present and future tax obligations.
  • States could ignite economic activity by removing obstacles to business growth in their respective territories. In some states the simple control of non-state actors that collect different levies and tolls could bring down the cost of doing business in their states, this would reduce product prices and service costs thereby facilitating faster state GDP growth which in turn would improve the state's IGR. For states that depend heavily on federal funds (FAAC) for survival the ease of doing business and the stimulation of the state's domestic economy is crucial. As federal revenues decline on the back of lower oil earnings the size of the monthly FAAC distribution will decline and this would cause major fiscal challenges for states with low IGR. In other states what may be needed is rethinking, reimaging, and restrategizing. This could hold for Lagos state (see Illustration 1).

 

 

Illustration 1:  Lagos; Reimagining The Future

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Going forward what is clear is thatnormality will no longer look the same. States in Nigeria will need to nudgethemselves into new mind frames and elevated headspaces to build fiscalframeworks that would not only tackle the immediate challenges of recurrentfiscal funding but also take care of the capital requirements of the future.


 

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Proshare Nigeria Pvt. Ltd.




Proshare Nigeria Pvt. Ltd.



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