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FG, states, LGs record N1.32tn shortfall in allocations

By on November 10, 2015

The persistent drop in the prices of crude oil in the international market has impacted negatively on allocations to the three tiers of government, with statutory allocations recording a shortfall of N1.32tn in the last one year.

This is even as the nation witnessed a shortfall of N1.49tn in gross federally collected revenue between October 2014 and September 2015.

Figures obtained from the Federal Ministry of Finance on Wednesday indicated that the sum of N5.59tn was distributed between October 2014 and September 2015 to the three tiers of government.

A breakdown of the N1.32tn shortfall showed that the country recorded a negative of N160bn in allocations in the last three months of 2014, while the balance of N1.16tn was the shortfall for the first nine months of this year.

Based on the 2014 budget, the three tiers of government were expected to share on monthly basis N653.39bn, making up N1.96tn for the last quarter of 2014.

The N1.96tn, when compared to the actual amount of N1.8tn allocated in the three-month period, represented a shortfall of N160bn.

The actual allocation of N1.8tn to the three tiers of government for the last three months of 2014 was made as follows: October, N593.34bn; November, N628.77bn; and December, N580.37bn.

For this year, the budgeted monthly allocation was pegged at N620.67bn, indicating a total of N5.58tn for the nine-month period covering January to September.

However, the drop in oil revenue, according investigations, made the Federation Account Allocation Committee to share N4.42trn within the first nine months of this year.

The actual allocation of N4.42tn among the three tiers of government compared to the budgeted amount of N5.58tn that would have been shared if there was no revenue challenge; thus indicating a shortfall of N1.16tn.

The N4.42tn was allocated as follows: January, N500.13bn; February, N522.05bn; March, N435.06bn; April, N388bn; and May, N418.4bn.

The sum of N539.24bn was allocated in June, while July, August and September had N511.79bn, N442.61bn and N389.93bn, respectively.

The Federation Account is currently being managed on a legal framework that allows funds to be shared under three major components of statutory allocation, Value Added Tax distribution and allocation made under the derivation principle.

Under statutory allocation, the Federal Government gets 52.68 per cent of the revenue available for sharing; states, 26.72 per cent; and local governments, 20.60 per cent.

The framework also provides that Value Added Tax revenue be shared thus: Federal Government, 15 per cent; states, 50 per cent; and local governments, 35 per cent.

Similarly, extra allocation is given to the nine oil producing states based on the 13 per cent derivation principle.

On the revenue side, investigations also revealed that the country earned a total N4.47tn between October last year and September this year from oil and non-oil sources.

Since October 2014, the revenue earned from oil and non-oil sources has been experiencing a steady decline.

For instance, the sum of N536.69bn was earned in October 2014. This dropped to N500.07bn and N490bnin November and December; while N416.04bn, N401.46bn and N315.04bn accrued in January, February and March this year, respectively.

There was a further decline in revenue in the month of April with the sum of N282.06bn; while May, June, July, August and September recorded N324.96bn, N485.95bn, N433.58bn, N369.14bn and N321.99bn, respectively.

President MuhamaduBuhari had on Friday said in an interview he granted the Nigerian Television Authority and Channels TV that he inherited a country that was vandalised materially and morally.

He said it got to a stage that the government could not afford to pay the salaries of its workers.

The President recalled that the situation degenerated to a level that the Federal Government had to help 27 of the 36 states to pay salaries.

Buhari had said, “Where is the money? You must have known that the Federal Government had to help 27 out of the 36 states to pay salaries.

“Nigeria cannot pay salaries. The Federal Government itself had to summon the governor of the central bank to see how it would pay salaries, not to talk of the agreements we signed with foreign countries, counterpart funding and so on.

“This country was materially and morally vandalised, and you are in a position to know even more than myself unless you are testing my knowledge whether I know it or not.”

When asked to be categorical on whether the country was broke, Buhari replied, “Of course, Nigeria is broke.”

Some financial experts, who spoke to our correspondent on the issue of declining allocations, said there was a need for the government to urgently begin a readjustment of its fiscal position in a way that would enable it generate more revenue from taxes.

The Director-General, Institute of Fiscal Studies of Nigeria, Mr. Godwin Ighedosa, said, “We have so much relied on oil revenue in the last 45 years and with the decline in oil revenue, the time has come now for us to review our fiscal position.

“We need a short-term fiscal adjustment, particularly in our budgeting system, by switching from zero-based budgeting system to a performance-based budgeting system.

“There is a need for a reform of the country’s tax administration system to enable the Federal Government to raise more revenue from Capital Gains Tax. Our tax to Gross Domestic Product ratio is one of the lowest in the world and we need to address that.”

He also said the expenditure of that the government needed to be reduced in a manner that would reflect the rate of revenue decline.

The Chief Executive Officer, Safmur Investments Limited, Mr. Rislanudeen Muhammad, said the fall in revenue was making the economy to become more fragile.

He said while the economy was growing weaker by the day owing to vulnerabilities in the oil market, Nigeria’s external partners were beginning to have doubts about the potential in the economy.

Muhammad, a former Managing Director of Unity Bank Plc, said, “We have done things wrong in the past because we should have saved a lot of money through the Excess Crude Account.

“That arrangement in the constitution which stipulates that any money generated must be shared is a major problem for Nigeria.

“We are not earning as much as we were earning before. What the economy needs now is single-digit interest rate and a little devaluation (of the naira) to allow for stability, support GDP growth rate and employment, and avoid recession.

“Already, we have had two consecutive quarters of declining GDP growth. To mitigate that, we need an expansionary fiscal policy to support increased employment and not tightening.”