Financial experts at Cowry Assets Management Limited have identified rising cost of living and fiscal pressure as key factors undermining evidence of higher revenue earnings accruing to the three tiers of government in recent times.
Expressing worries over the situation in its latest weekly market review titled; “Improvement in FAAC Revenue to Government to N2.3trn m/m Amidst Fiscal Challenges,” researchers at Cowry stated that, “it is evident that the ongoing fiscal challenges faced by state governments in Nigeria are concerning.”
The report insisted that “The lower revenue distributions experienced relative to their total expenditure underscore the inadequacy of available funds, especially amidst efforts to mitigate the effects of the country’s rising cost of living and fiscal pressure.
“This pressure is primarily driven by the relentless growth in expenditure profiles and the weighty burden of servicing existing debts. These factors collectively contribute to the challenging fiscal landscape facing Nigeria’s governmental entities.”
The report which focused on the monthly distribution by the Federation Allocation Committee to the three tiers of the government for February noted that the 38.9 percent month-on-month growth in distributed funds for the month under review underscores improved earnings from oil amidst evolving global and domestic dynamics.
The Office of the Accountant General of the Federation had announced the distribution of N2.33 trillion as total revenue available to the tiers of government N2.33 trillion, representing a 38.9 percent rise from N1.67 trillion in January 2024.
Analysing the FAAC data, Cowry Researchers said the figures are essential for understanding fiscal dynamics, which portrayed a marginal uptick of 0.26 percent to N1.15 trillion in February, signifying a slight improvement from the preceding month’s N1.14 trillion.
“This distribution was distributed among the federal and subnational governments, with the Federal Government receiving N352.409 billion, State Governments securing N366.950 billion, and Local Government Councils obtaining N267.153 billion.
“Moreover, derivation revenue worth N166.244 billion, constituting 13 percent of mineral revenue, was allocated to benefiting states. The surge in revenue can be primarily attributed to two key drivers: a substantial increase in exchange gain revenue, which surged by N328 billion to reach N607.44 billion, and a noteworthy boost in Value Added Tax (VAT) revenue, rising to N428 billion.”
The researchers noted that the increments were propelled by improvements in the tax collection system and favourable foreign exchange rate differences, underlining the significance of policy interventions and economic dynamics in revenue generation.
Expatiating on revenue generation, the report stated that, “Examining the components of the total distributable revenue, as elucidated in the FAAC communiqué, reveals a diversified revenue stream.
“Distributable statutory revenue amounted to N101.35 billion, distributable VAT revenue stood at N428.81 billion, Electronic Money Transfer Levy (EMTL) revenue totaled N15.16 billion, and Exchange Difference revenue reached N607.4 billion. Notably, the gross statutory revenue for February 2024 surpassed January’s figure by N40.62 billion, reaching N1.19 trillion.
“A breakdown of distributable statutory revenue allocation showcases the Federal Government’s receipt of N7.35 billion, State Governments’ allocation of N3.73 billion, and Local Government Councils’ share of N2.9 billion.
“Additionally, N87.39 billion was allocated to benefiting states as derivation revenue, emphasizing the government’s commitment to fostering equitable resource distribution and regional development. Further dissecting distributable VAT revenue, the Federal Government received N64.321 billion, State Governments obtained N214.403 billion, and Local Government Councils were allocated N150.082 billion.
“Moreover, revenue from the electronic money transfer levy amounted to N15.16 billion, with the Federal Government receiving N2.27 billion, State Governments obtaining N7.58 billion, and Local Government Councils securing N5.31 billion. Moreover, the Federal Government received N278.46 billion from the N 607.44 billion Exchange Difference revenue. The State Governments received N141.24 billion and the Local Government Councils received N108.9 billion. The sum of N78.9 billion (13 percent of mineral revenue) was shared to the benefiting States as derivation revenue.
“Also, total deduction for cost of collection was N66.46 billion; total transfers, interventions and refunds was N856.94 billion and savings was N250 billion. In terms of revenue sources, February 2024 witnessed significant increases in Petroleum Profit Tax (PPT), Import Duty, Excise Duty, Value Added Tax (VAT), and CET Levies, while Oil and Gas Royalties observed a marginal increase. Conversely, Companies Income Tax (CIT) and Electronic Money Transfer Levy (EMTL) experienced considerable decreases, reflecting dynamic revenue streams amid evolving economic conditions.”
Addressing the prospect of the revenue increase on the economy in the near future, the Cowry Researchers said, “Looking ahead, there’s a possibility of an increase in gross federally collected revenue, denominated in naira. This potential boost is expected to stem from the continued depreciation of the naira.
“However, despite this anticipated rise in nominal revenue, both the Federal Government and state governments are likely to continue grappling with significant fiscal pressure.”
