THE need for the 36 state governments to look inwards on the diversification of their economies to reduce their dependence on federal allocations has become more urgent than ever. This is largely due to the steady decline in these allocations. Indeed, the latest quarterly review of the Nigerian Extractive Industries Transparency Initiative (NEITI) covering January-June 2017 showed that the 36 states received only N2.7 trillion out of their N4.7trn budgeted allocations for the period.
This is a 40.7 percent shortfall. The report explained that the disbursements to the three tiers of government in the first-half of 2017 suggest that there will be difficulties in implementing the budgets at both federal and state levels. It added that the volatility in revenue inflow will adversely affect planning and implementation of projects. The report further said that the sharp drop in revenue was aggravated by Nigeria’s inability to diversify its revenue base from oil, which currently accounts for about 80 percent of national income. This, the report said, is a precarious situation for the federal and state governments. There has been a steady decline in national income this year. In January, N430.16 billion was generated, out of which the Federal Government took N168bn, the states, N114bn, and local governments, N85.4bn.
In February, the total sum was N514bn, out of which the Federal Government got N200.6bn, states, N128bn, and local governments, N96.52bn. March revenue dipped to N466.9bn, and in April, it dropped by N52bn, as only N415.73bn was shared among the three tiers. However, the allocation improved in June, with a total of N652.229bn shared.
The impact of the declining allocations to states is already showing, with most state governments owing workers’ salaries and pensions. This is in spite of the Federal Government’s financial bailouts in the past two years. The recklessness of some governors in the management of their states’ resources has put the states in huge debts. The reduction in global oil prices has now made diversification of the economy mandatory.
According to the National Bureau of Statistics (NBS), state governments generate only 15 percent of their revenue and depend on federal allocations for sustenance. The Bureau says that with the exception of Lagos State, the Internally Generated Revenue (IGR) of the states in a year cannot sustain their overhead costs. In 2012, for instance, the IGR of 35 states was put at N550bn, which was not even enough to pay the salaries of their workers.
However, while it has become imperative for the states to look inwards on the diversification of their revenue bases, the current revenue sharing formula should be reviewed in favour of the states. The formula gives the Federal Government 56 percent, states, 24 percent and local governments, 20 percent. This does not reflect the economic realities in the country. Besides, Sections 313 and 315 of the 1999 Constitution (as amended), call for periodic reviews of the sharing formula. The National Assembly should intensify efforts to review the present structure.
Though the economic outlook of the country remains uncertain, with recession still dragging on, the 36 states’ debt profiles paint a grim picture of their borrowing pattern and inability to invest in productive sectors that could stimulate their economies. The first Quarterly Review of NEITI for 2017 revealed that the total debt stock of the 36 states stood at N3.342trn as at December 2016.
The report was based on the Federal Accounts Allocation Committee (FAAC) disbursements, review and projection. It shows that Lagos, Delta, Osun and Akwa Ibom states have accumulated a total debt of N1.26trn. This is 37.76 percent of the total indebtedness of the 36 states.
From the statistics, Lagos State tops the list with a debt of N603.25bn. This is against its total federal allocation of N410.5bn in 2016. Delta State is second with a debt stock of N331.95bn, with revenue earnings of N142.77bn. Osun has N165.9bn, and Akwa Ibom, N161.23bn. Other states with huge debt profiles are Ogun, N103.75bn, Katsina, N81.05bn, Kano, N67.29bn, Edo, N94.54bn and Cross River, N166bn. The situation was worsened by dwindling revenue as a result of the slump in oil prices.
Altogether, with Federal Government revenue profile not likely to get better soon, state governments in particular should adjust their spending to curtail their budget deficits. The falling federal allocations should be a wake-up call to the state governors to stop whining. It is time for them to think outside the box to boost their IGRs.