FAAC Payout Well Below Most States' Needs

Wednesday, December 30, 2020 / 09:23 AM / By FBNQuestResearch / Header Image Credit: The Nation

Thegross monthly distribution by the Federation Account Allocation Committee(FAAC) to the three government tiers and eligible agencies amounted to NGN601bn(USD1.53bn) in December (from November revenue), This was NGN3bn lower than theprevious month's payout: the earlier distribution, however, included adrawing of NGN20bn from the stabilization fund that is managed by the sovereignwealth authority. From one cursory account in the local media, we learnt thatthe take from oil and gas royalties, import and excise duty, and petroleumprofit tax (PPT) was substantially higher than in October while thecollection of companies' income tax was much lower. State governments receiveda total of NGN202bn including 13% derivation for the few oil-producing states.

The headline figure is made up ofgross statutory distribution of NGN436bn, the VAT Pool of NGN157bn and fxequalization amounting to NGN8bn.

Although fractionally lower than theprevious month, it did not include a drawing from the stabilization fund, asnoted, or an unspecified FGN intervention, as occurred with the distributionsin both October and November.

If we are looking for a positivetrend, it would be the rise in VAT collection due to the increase in thestandard rate this February and improving coverage (Good Morning Nigeria, 24December '20). The rise amounted to 29.2% q/q and 41.5% y/y in Q3 '20.

This latest payout to states falls farshort of their spending, which averaged NGN351bn per month in 2018 and NGN396bnlast year. It would not even have covered their salaries and pensions inaggregate. We have seen local media reports of several state governments' 2021budget proposals, and they are mostly detached from reality in the sense that theydo not acknowledge their modest revenue or their very limited access to newborrowing due to controls tightened by the federal finance ministry and theDebt Management Office.

A small number of states, led byLagos, can meet all their obligations at these reduced levels of FAACdistribution because they collect substantial sums of internally generatedrevenue.

There are three months between theinitiation of a crude oil sale contract and the remittance of the sale proceedsto the federation account. To reinforce this point from our chart,receipts from PPT and oil royalties tanked in July, ie three months on from thelow for the oil price this year when very briefly traders and shippers had topay to dispense with their cargoes of WTI crude.

Revenueallocations (gross) by the FAAC (NGN bn)

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