The continued fall in the price of crude oil in the international market and the lockdown brought about by the rampaging Covid19  pandemic have put a massive strain on the finances of many states governments in Nigeria, Business  Hallmark findings can reveal.

At the close of trading on Friday, April 2020, Brent Crude traded at $21.44 a barrel, while WTI closed at $16.94.

While the fall in crude oil price, their main source of revenue, has cut their revenue by between twenty-five to ninety per cent, depending  on each state allocation,

the lockdown has further squeezed their alternate source of revenue, taxes, as business activities have almost grounded to a halt and consumers forced to stay indoors.

Apart from services on the exclusive list, such as security, immigration and currency,  states provide most of Nigeria’s public health, education and housing services. Even, states, communities and individuals are actively involved in the security business owing largely to the failure of the federal policing system.

Though the three tiers of government have been getting considerably lower amounts from the federation account since the beginning of this year, compared to last year,  available data suggest that the situation worsened in the last four months.

For example, statutory allocations to the Federal Government, 36 states and 774 local government areas (LGAs) fell to N647.3bn in January 2020, compared to N716.2bn in December 2019.

In February 2020, they shared N581.5bn, March N661.4 and April N634.7bn. This represents over N400bn fall in revenue shared in just four months.

Analysts maintained the situation would get worse as the lockdown progresses. They noted that the proceeds from the sale of oil the three tiers shared in the last two months came from crude cargoes sold in January.

“Nigeria’s crude is usually sold in the futures and forward market. For example, as at Friday, April 24, we sold crude oil for June 24. Yet we are still in April. What this means is that we are going to receive payment for the crude sold on Friday when we deliver in on June 24. While the sharing could extend into July.

“You can see that we are leaving on the proceeds from past sales. At the beginning of this year, Brent crude sold at over $70 per barrel. That is what we are still sharing. Today, it is around $20 per barrel. By the time we share the proceeds from February, March and April sales when crude is at its lowest, that is when we will feel the impact.

“Governments, particularly states and local governments should brace for the worse. Salaries are going to be delayed if paid at all”, declared Segun Jacobs, an accountant with Office Max, Ikeja.

According to the latest report compiled by the Federation Account Allocation Committee (FAAC) obtained by our correspondent, revenue shared by the three arms dropped by 24.43 per cent between July 2019 and February 2020.

According to the report, titled ‘FAAC 2019 Series’, the three tiers of government shared N769.53 billion in July 2019; N720.88 billion in August 2019; N740.87 billion in September 2019; 702.02 billion in October 2019; N650.83 billion in November 2019; N716.30 billion in December 2019; N647.35 billion in January 2020 and N581.57 billion in February 2020.

The revenue contraction also affected the 13% derivation fund due to the oil-producing states in the federation, which suffered a drop of about 8.99 per cent against the growth of 48.13 per cent it recorded in 2018 and 20.90 per cent in 2017, the year the country recovered from the recession.

Already, the Federal Government has announced the revision of its own 2020 budget by as much as N1.5 trillion.

The government also announced a cut in crude oil benchmark price down to $30, against the $57 proposed in the budget on the backdrop of falling crude oil prices on the international market, while crude oil production remains at 2.18m barrels per day as earlier stated in the budget estimates.

Most states, findings also revealed, have seen a dramatic decline in their Internal Generated Revenue (IGR).

Personal income taxes, market and motor parks tolls, mining fees and consumption taxes from hotels, eateries and clubs, usually states’ top revenue sources, started to feel the impact of the pandemic towards the end of February, when schools, factories and businesses either closed down or resorted to running only skeletal services, leading to the loss of millions of jobs and paychecks.

Meanwhile, the massive drop in revenue has started to affect states and local governments. One of the casualties, according to findings, are capital projects, as most states have scaled-down on several projects under construction owing to the paucity of funds.

BH reliably gathered that some states are currently finding it difficult to pay salaries. Apart from Lagos and a few states which had paid April salaries, several states are still owing to their workers March salaries.

Some analysts believe that if the situation continues, several states would not be able to meet up with their financial obligations in three months.

“The lockdown is going to be debilitating for state and local governments finances,” said a staff of an accounting firm consulting for one of the states in the South West.

According to BudgIT, a civic organisation, apart from Lagos, and maybe Rivers and Akwa Ibom, due to their high IGR which has also been negatively impacted, no other state will be able to pay salaries without federal allocations, not to talk of executing projects.

BudgIT’s lead researcher, Orji Uche, added that many states would have challenges if the federal allocation were not forthcoming due to fluctuation in crude oil price.

Already, some states have been approaching banks to get IOUs to be able to cater to pressing state matters.

A labour leader from a North Central state who did not want his identity disclosed, said that officials of the state government recently informed labour that it might not be able to pay the new minimum wage.

“The leadership of our union was recently informed by the state government that the payment of the new minimum wage is no longer visible. We told the government that we won’t accept anything below the agreed amount already signed by the president. We are waiting for government’s response to know our next line of action”, he said.

Meanwhile, some states have started rolling out strategies to mitigate the cash crunch. One of the strategies is the downward review of their 2020 budgets.

The Oyo State government is re-prioritising its expenditure and cut its 2020 budget to survive the impacts of corona virus-induced lockdown and oil price crash in the international market.

The Chief Economic Adviser to the Governor, Dr Musbau Babatunde, said that since the price crash had affected the federal government’s revenues from oil, it would also hurt monthly allocations to states in the country.

According to Babatunde, even the federal government may need to have what he calls an implicit deficit so that it can be able to maintain its recurrent expenditures.

Also, the Lagos State Government has revealed its intention to review the 2020 N1.168 trillion budget.

The state Commissioner for Economic Planning and Budget, Mr Sam Egube, said the reordering became necessary given the slump in the price of crude oil and a reduction in the IGR of the state.

“It is clear to us, by now, that we are faced with global health pandemic. Crude price oil is dropping, there are supply chain challenges, demand and supply challenges which have resulted in a drop in output and revenue of both the state and the citizens of Lagos State.

“In line with Mr Governor’s commitment, we are battling both the challenges headlong to win. Towards providing significant leadership to ensure we manoeuvre the challenges that had come upon us.

“We are implementing a strategy, to ensure that economic headwinds, even though it promises to be very daunting, that the impact will not be devastating on both the state and the citizens, we are proud and indeed that the spirit of Lagos lies in resilience and our ability to put together through in difficult times like this”.

Other states that have announced plans to cut their budgets or had gone ahead to fo so include Ogun, Kano, Zamfara, Ekiti, Edo and many others.


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