The financial profiles of most state governments have been challenging in recent times to the extent that some of them have been walking on a tightrope to keep afloat. Never before has their financial situation become gloomier than now. Many of them are reportedly on the verge of bankruptcy, even with the monthly disbursement from the Federation Account, which has witnessed a drastic drop. According to the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Dr. Elias Mbam, the present financial strait of the states is due to their dismal Internally Generated Revenue (IGR).
He observed that with the exception of a few states, the low level of IGR of most state governments is such that the Federation Account is currently over stressed by the unending demand of the three-tiers of government.
He urged the state governments to find creative ways of increasing their internal revenue generation and be less dependent on the federal purse. The RMAFC boss raised the alarm when he received the Annual States Viability Index (ASVI) report from the Editor-in-Chief of the Economic Confidential, Mr. Yushau Shuaib, in Abuja, recently. The ASVI provides information on how states can improve their IGR. Part of the report says many states are insolvent with total IGR below 10 per cent of their receipts from the Federation Account.
The insolvency status of many of the state governments is worrisome, even though some of the states categorised as such have also faulted the report by the Economic Confidential and supported by RMAFC. Similarly, the Nigeria Extractive Industries Transparency Initiative (NEITI) report revealed that 28 out of the 36 states in the federation and the Federal Capital Territory (FCT) are not solvent enough to discharge their financial obligations.
Also, recent data from the National Bureau of Statistics (NBS) brought to the fore the acute financial situation of most state governments as a result of dwindling revenues from Federation Account Allocation Committee (FAAC) disbursements in the last two years. Federal allocations reportedly dropped by almost 50 per cent between 2017 and 2018. The parameters used in the ASVI by the Economic Confidential and NEITI, showed that the total IGR of the 36 states witnessed a sharp decline from N3.6trillion in 2016 to less than N1trillion in 2019. NEITI half-year 2019 report showed that the states shared N3.842trillion from FAAC as against N3.946trillion in the same period in 2018.
With a sharp drop in the prices of crude oil in the international market, following the outbreak of COVID-19 pandemic, the total receipts from oil has dipped, putting more pressure on states to increase their IGR or sink into financial crisis.
Lagos and a few other states have responded appropriately. Lagos, according to the latest ASVI report, topped the IGR list with over N600billion, compared to about N260billion from FAAC. Lagos IGR is more than those of 24 states put together. Just recently, the state government said it had met about 81 per cent of its IGR target for 2020. We urge other states to learn from Lagos State on how to increase their internal revenue. It is interesting that Ogun, Enugu, Rivers, Kwara, Kaduna and Zamfara states posted impressive IGR in 2019. We believe that many states should not be among insolvency states if they look inwards and exploit the resources in their domains and the state governors reduce the cost of governance. The governors can do this by drastically reducing their so-called security votes.
No doubt, the era of over-dependence on federal allocation is over, just as the era of over-dependence on oil revenue. We call on the states to design creative ways to raise money for development. There is need to revisit the issue of fiscal federalism through meaningful restructuring that will allow the states control their natural resources. Unfortunately, the Constitution vests in the Federal Government the exclusive rights of minerals in all the states of the federation. Let the National Assembly amend this section of the constitution so that the states can exploit their mineral resources.
Also, there is urgent need to review the present revenue sharing formula, which allocates 54 per cent to the federal government, 26.72 per cent to states and 20 per cent to local governments. Paragraph 32(b) Part 1 of the Third Schedule of the 1999 Constitution states clearly that the RMAFC should “review, from time to time the revenue allocation formulae and principles in operation to ensure conformity with changing realities, provided that any revenue formula which had been accepted by the National Assembly shall remain in force for a period of not less than five years from the date of commencement of the Act.” The time has come to alter the existing formula in the spirit of true federalism.
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