At N2.01tn, FAAC Disbursements Slump by 30% in First Half of 2016

•  FG relies more on statutory allocation than states, LGs

Obinna Chima

The total allocation from Federation Account Allocation Committee (FAAC) to the three tiers of government decreased by 30 per cent to N2.01 trillion in the first half of 2016, compared with the N2.89 trillion recorded in the first half of 2015.

The Nigeria Extractive Industries Transparency Initiative (NEITI), which stated this in its latest publication released monday, pointed out that the drop in allocation to the federal, states and local governments has implications for governance, security and development.

The reasons for the reduction in FAAC disbursements included the drastic fall in oil prices and lower oil production as a result of militant activities, which led to lower oil revenues.
Also, owing to lower government revenues, there was decline in consumption and investment expenditure, which resulted in lower taxes.
This also led to lower non-oil revenues.

The report also showed that historically, FAAC disbursements in second half of the year is always lower than those of the first half of the year.

According to the report, the federal government took most of the hit as its total receipt from FAAC fell from N1.23 trillion in the first half of 2015 to N854 billion as at June 2016. This represented a 30.9 per cent decline.

The federal government relies more on the statutory allocations than state or local governments, the report stated.

On the other hand, total disbursements to states tell from N1.009 trillion in the first half of 2015, to N701 billion in the first half of 2016.
For the local governments, allocations from FAAC dropped by 26 per cent from the N580.63 billion they were allocated in the first half of 2015, to N429.43 billion of the first half of 2016.

“Reduced FAAC allocations across all tiers of government will likely constrain the capacity of governments to fully implement their budgets. Borrowing likely to increase, deepening budget deficits and debt burden across tiers of government,” it added.

A breakdown of the FAAC disbursements showed that the total amount received in May was the lowest in the first six months of 2016. Also, disbursements to the federal government were lowest in the month of May in both 2015 and 2016.

Precisely, in May 2015, the federal government received N160.63 billion while the figure for the corresponding month in 2016 was N118.09 billion. Similarly, disbursements to the state and local governments were lowest in May in 2015 and 2016.

For states, the highest allocation received for the first half of 2016 was N141.75 billion in January while N99.29 billion was received in May. This represented a fall of 29.9 per cent.
Local governments also received the largest allocation in the first half of 2016 in January (N85.4 billion) while they received N61.94 billion in May, representing a 27.4 per cent fall.
According to the NEITI report, for half-yearly aggregate FAAC disbursements from the first half of 2013 to the first half of 2016, showed a general decline.

It was observed that between the “first half of 2013 and first half of 2016, FAAC disbursements have been falling every half. With the exception of the second half of 2015, FAAC disbursements are lower in the second half of the year when compared to the first half.”

The report added: “While total disbursements were N5.17 trillion in the first half of 2013, they had dropped to N4.57 trillion in the second half of 2013. Total disbursements in 2014 also fell from N4.54 trillion in the first half to N4.05 trillion in the second half. While total disbursements in the first half of 2016 were N2.02 trillion, it is likely this trend may not continue given the rise in oil prices and the exchange rate and decline in militant activities.
“It is easy to see that total FAAC disbursements have followed the trend of oil prices. This shows the dependence of governments at all tiers on the oil sector, and this fact highlights the vulnerability of public revenue to global oil market developments.

“On average, statutory allocations constituted 86 per cent of total disbursements to the federal government in the first half of 2016. Statutory allocations make up 71 per cent of total disbursements to state governments and 67 per cent of disbursements to local governments. Thus, the federal government relies more on statutory allocations than the states or local governments.
“This should not be surprising since the FG gets 52.68 per cent from the federation account, while the states get 26.72 per cent and the LGAs receive 20.60 per cent. Because states and local governments receive more than the federal government from VAT, disbursements from VAT account for a larger share in their allocations.”

Furthermore, it showed that in the first half of 2016, while VAT accounted for 6.59 of total allocations to the FG. Allocations from VAT accounted 26.79 per cent of disbursements to states and 30.65 per cent of disbursements to LGAs.

It would be recalled that the federal government takes 15 per cent of VAT, while states and LGAs receive 50 per cent and 35 per cent respectively.

The report also showed that the federal government had already been borrowing in previous years with higher FAAC allocations as both the budget deficit, and consequently, federal debt have been rising.
“With considerable lower FAAC disbursements, borrowing will likely increase and this would result in higher debt.Dwindling revenue implies that all levels of government will not have enough resources for budget execution. Thus, borrowing is inevitable, and this will increase budget deficits and worsen the debt situation.

“Even though, historically, disbursements in the second half of the year had been lower than the first half, this could be different this year. The resurgence in oil prices coupled with decreased militant and exchange rate differentials could boost statutory allocations from oil,” it added.