By Omodele Adigun, Isaac Anumihe, and Adewale Sanyaolu
THE revelation last week that the Federation Accounts Allocation Committee’s (FAAC) allocations to the three tiers of government hit a five-year low of N232.6billion in March was one thing many knew was inevitable in the face of a dwindling crude oil revenue.
So when FAAC sat at its meeting in Abuja to share the amount, it clearly showed that there was a shortfall of about N37.88 billion from the N270.5 billion distributed in February. It was also the lowest ever shared at FAAC in the last five years.
In January, this year, FAAC shared the sum of N283.338 billion as statutory allocation for the month with a shortfall of N17.38 billion.
Out of this sum, the Federal Government collected N137.473 billion (52.68 per cent), states N69.728 billion (26.72 per cent) while the local governments received N53,757 billion (20.60 per cent) and N22,380 billion was shared among the oil producing states as derivation fund.
The Permanent Secretary, Ministry of Finance, Mahmud Dutse, who gave the breakdown of the March allocation to the beneficiaries, said the Federal Government got N109.113billion, states got N55.34 billion, while local governments got N42billion and oil producing states given N19.75 billion as derivation funds.
As expected, FAAC gave reasons for the shortfall, attributing it to the crash in crude oil price, shut-in and shutdown of production for repairs and maintenance of equipment. However, Dutse said the income was marginal due to a 10 per cent drop in crude oil prices.
“For now not much revenue is derived from the non-oil sector. So, what the government is focusing on is to grow the non-oil sector and at the same time adopt measures to ensure that revenue is derived from the non-oil sector. Although oil contributes less than 20 per cent of the Gross Domestic Products(GDP), non-oil revenue contributes more than 70 per cent of the GDP. We have taken measures to grow agriculture, solid minerals, manufacturing and so on. Infrastructural development which will allow the non-oil sector to grow is a process that will grow. That will take sometime but we are working on it”
The trajectory of low oil yield which has trended for several years now, may spell doom to the economy if nothing is not done fast.
Already, the states are heavily indebted to their workers while contractors who have been owed billions of naira in the states have stopped work on their various sites. This has affected capital projects and development programmes.
The difficult times being experienced in the states prompted the Federal Government to defer the obligatory repayments of loans due to the Federal Government from the states. The restructured loan obligations are being deferred for the current month.
According to Ministry of Finance, the deferral amounts to a total of N10.9 billion and objective is to ensure that the states are in a better position to meet their salary obligations.
All states will receive the relief this month, however further deferrals will be subject to the agreement of a Fiscal Restructuring Plan to be prepared by each state with clear measurable objectives. The Federal Ministry of Finance is keen to ensure that the programme of Financial Discipline being driven by the Federal Government is replicated in all tiers of government, including elimination of payroll fraud and increased spending efficiencies in overhead. Enhanced financial transparency by the publication of audited accounts and submission of debt profile may also be required. Moving states towards fiscally sustainable practices is a key objective of the Federal Government to ensure that Nigeria recovers from the current economic challenge” the Ministry of Finance, said..
Most projects have been put on hold and civil servants and contractors are grumbling over salaries and contractual fees. It is against this background that the Accountant General of the Federation, Ahmed Idris, in a radio programme assured that the Federal Government is working out modalities to ensure that payment of Federal Government workers are paid early, before 24th of 25th of every month.
He said that there is a standing instruction from President Muhammadu Buhari, for workers to be paid on or before 24th or 25th of every month but compliance to this directive has been hampered by the limited resources available to government which can only be determined after the monthly FAAC meeting. Daily Daily Sun spoke to some experts on the implications of the low revenue on the economy.
For instance, the Director General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, bemoaned the cash crunch facing the Federal Government, saying the development portends grave danger for all three tiers of government and other agencies.
He explained that many states would be unable to meet major obligations which ultimately portend a major risk to governance because the system is becoming financially unsustainable.
Yusuf noted that in the face of current realities, the three tiers of government alongside the Ministries Departments and Agencies (MDAs) should come up with innovative measures to remain afloat at this period.
He said government should begin to device strategies to cut down on wastages, while equally advising that workers should be taking into confidence in this period of financial uncertainty so that they can all be on the same page.
But beyond cutting wastages, he said government should begin to look at ways to properly align its resources. The LCCI boos said it remained disturbing that up till this moment, the Federal Government is still committing a larger chunk of its foreign exchange to the importation of petrol, advising that it should hands off the business of importing fuel and allow private operators to fill that gap.
He argued that the insistence of government to be actively involved in the importation of petrol is longer sustainable.
Yusuf equally faulted the policy of the Central Bank of Nigeria (CBN), especially at it relates to forex, saying the major areas where revenue ought to have been accruable to government; tax and duties had been blocked.
He cited the recent comment credited to the Comptroller General of Customs that the Nigeria Customs Service (NCS) recorded a shortfall of over N200 billion in payments of duties and other forms of statutory collections in the last quarter of 2015 as a result of forex issues and import restrictions.
The economist disclosed that the effect of the economic policies of government is already taking a toll on businesses because they can no longer import raw materials that are needed to aid production which subsequently has impacted negatively on the flow of revenue to government collecting agencies
Speaking in the same vein, Barrister Chukwumeka Eze, a Lagos-based tax expert, also lamented that the current financial crisis portends grounding poverty for the country.
Hear him: “Infrastructural development will be at the lowest ebb and most of the states will be surviving on recurrent expenditure, meaning that capital expenditure will be put on hold. It will just be there to decorate the budget.They will concentrate on paying salaries. So the implication is that there will be economic doom. The promised employment may not necessarily take place. And there will be more capital flight and more people will be leaving the country. It will be more thriving to make Dollars and bring it into this country. Many Nigerians will become illegal immigrants. But as it is now, it may lead to labour unrest as many workers would be sent away.The implication is that there will be more hardship. Inflation will go up beyond the 12.4 per cent that we currently have .The stability of the exchange rate will still depend on the macro-economic management.”
The Chief Executive Officer of Centre for Financial Journalism and an economist of repute, Mr Ray Echebiri, painted a gloomy picture of the economy, alluding that the economy was heading for a precipice.
“There is danger for the economy. One major thing that determines the growth of the economy or otherwise is demand. With this level of income for the states and federal government, it means that many states will not be able to pay salaries or embark on any new project or complete the existing ones. So, it means that the aggregate demand will decline. And once, the aggregate demand is declining, that economy is not doing well. In fact, it is synonymous with low growth or no growth at all. And in that case, you will be talking of recession.
One good thing that the Federal Government has done(I hope that will be fully implemented) is that the money will be given to the states(the whole of that money will be given to the states that owe so much money) and payment will not be taken from source.
A development economist and consultant to companies on economy matters, Mr Odilim Enwegbara, suggested that states that cannot take care of their citizens should merge or be shared among other neighbouring states.
“This is a wake-up call telling the painful truth we have all these years tried to ignore; which is that our fiscal union has always stood in our very way of practising true and vibrant fiscal federalism. This distorted system has worked so far because oil and gas money has been flowing to the centre with everyone getting their potion hoping that this will work forever.
The plunging of oil prices and the downward revenue inflow means that the time to rethink the current system is now and also the time for the three tiers of government to begin to think out of the box is not only equally now but has become a matter of life and death.