FAAC Payout Well Below Most States’ Needs

The gross 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 the previous month’s payout: the earlier distribution, however, included a drawing of NGN20bn from the stabilization fund that is managed by the sovereign wealth authority.

From one cursory account in the local media, we learnt that the take from oil and gas royalties, import and excise duty, and petroleum profit tax (PPT) was substantially higher than in October while the collection of companies’ income tax was much lower. State governments received a total of NGN202bn including 13% derivation for the few oil-producing states.

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

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

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

This latest payout to states falls far short of their spending, which averaged NGN351bn per month in 2018 and NGN396bn last year. It would not even have covered their salaries and pensions in aggregate. We have seen local media reports of several state governments’ 2021 budget proposals, and they are mostly detached from reality in the sense that they do not acknowledge their modest revenue or their very limited access to new borrowing due to controls tightened by the federal finance ministry and the Debt Management Office.

A small number of states, led by Lagos, can meet all their obligations at these reduced levels of FAAC distribution because they collect substantial sums of internally generated revenue.

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