Business
Rising FAAC allocations worsen naira crisis
…as N6 trillion is shared in six months
With the removal of fuel subsidy, revenue allocations from the Consolidated Revenue Fund, also known as Federation Account Allocation Committee, FAAC, which is shared by the three tiers of government – federal, states and local governments – have virtually doubled, thus putting more fund in the coffers of governments. The amount of money shared every month, which previously used to be about half a trillion on average, has suddenly jumped to over a trillion.
However, rather than this provide succour to Nigerians, it has become part of the problem of the naira, which has seen its value drop from N470 in May 2023 to N1553 on February 23, 2024. Experts believe that the galloping inflation and the battering of the naira are caused by excessive money in circulation following the N24 trillion printed by the CBN for former President Buhari, the N48 trillion also borrowed by him, and the trillions hitting the economy every month, which observers say, is used to mop up available dollar in the market at any cost.
As economic hardship persists and Nigeria’s inflation rate keeps soaring, allocations to the three tiers of government by the Federal Account Allocation Committee (FAAC) keep increasing even as poverty continues to spread across the country.
Data from the National Bureau of Statistics (NBS) show that in the last six months, about N6 trillion has been shared by the three tiers of government with the Federal Government (FG) getting N2.25 trillion, while the total amount allocated to the states was N2.23 trillion, and the Local Governments (LGs) received a total amount of N1.49 trillion from the revenue generated from July to December 2023.
Based on the current revenue sharing formula, FG receives 52.68% of the revenue, States receive 26.72% and the LGs receive 20.60 %. These allocations are disbursed to ensure development at all levels of government and also to enable States and LGs to carry out their official responsibilities. However, the utilisation of LGs allocations is dictated by the state governors as most LGs are not autonomous.
Aside from these, oil-producing States also get 13 percent derivation.
The Federation Account Allocation Committee (FAAC) disbursed the sum of ₦1.80 trillion to the three tiers of government in August 2023 from the total revenue generated in July 2023. The allocations to the three tiers of government for August 2023 were: FG with a total of ₦391.93 billion, States with a total of ₦319.52 billion, and LGs with a total of ₦236.23 billion.
In September 2023, FAAC disbursed the sum of ₦1.48 trillion to the three tiers of government from the total revenue generated in August 2023. This is about a 17.8% decrease from the amount disbursed in August. The allocations to the three tiers of government for September 2023 were: FG with a total of ₦431.25 billion, a 9.12% increase from the amount allocated to the FG in August. States received a total of ₦361.19 billion, about 11.5% higher than the previous month’s allocation. The total amount allocated to LGs was ₦266.54 billion, an 11.4% increase from the amount allocated in August.
In October 2023, FAAC disbursed the sum of ₦1.59 trillion to the three tiers of government from the total revenue generated in September 2023, indicating a 6.9% increase from the amount disbursed in September.
The allocation to the FG was a total of ₦320.54 billion, 25.7% lower than the preceding month’s allocation. States received a total of ₦287.07 billion, a 20.5% decline from September’s allocation. LGs received a total of ₦210.90 billion, 20.9% lower than the previous month’s allocation.
In November 2023, FAAC disbursed the sum of ₦1.35 trillion to the three tiers of government from the total revenue generated in October 2023, indicating a 15.1% decrease from October’s disbursement.
The allocation to the FG increased by 0.87% in November. A total of ₦323.35 billion was allocated to the FG. States received a total amount of ₦307.72 billion, thereby indicating a 7.2% growth from the previous month’s allocation. The allocation to LGs with a total of ₦225.21, grew by 6.8% from the previous month.
FAAC disbursed the sum of ₦1.62 trillion to the three tiers of government in December 2023 from the total revenue generated in November 2023. This indicates a 20% increase from the total amount disbursed in November.
A total of N402.87 billion was allocated to the FG. This is 24.6% higher than the previous month’s allocation. States allocation grew by 14.3% with a total of ₦351.70 billion. LGs received a total of ₦258.81 billion, a 14.9% from the previous month.
In January 2024, FAAC disbursed N1.13 trillion from the total distributable revenue generated in December 2023. The FG received a total of N383.872 billion, indicating a 43.4% increase from the previous month’s allocation. A total of N396.693 billion was allocated to State Governments, thereby showing growth of 12.8% and the LGs received N288.928 billion, an 11.6% increase from the previous month’s allocation.
In an interview with our correspondent, Mr. Teslim Shitta-Bey, Chief Economist and Managing Editor, Proshare Nigeria, said that the depreciating value of foreign exchange is a major contributor to the rising inflation rate.
“I think the problem is the inflation rate. The foreign exchange value of the Naira has depreciated over the last few months. Particularly in the last quarter of 2023 and in the first quarter of 2024. We have seen the dollar rate move from under ₦500 per dollar to ₦900 per dollar. Recently, it’s been hovering around ₦1500 and ₦1620 per dollar, especially in the Bureau de Change (BDC) market. This is an indication that for every dollar or oil export, you get more Naira. There is more Naira available at FAAC because of the depreciation in the external value of the Naira,” he said.
He attributed the increase in FAAC allocations to the three tiers of government to the decline in the foreign exchange market, which has consequently worsened the domestic inflation rate due to the fact that Nigeria is an import-dependent country.
“This also has some other consequences. A decline in the foreign exchange market leads to the worsening of domestic inflation because 70% of Nigeria’s domestic inflation can be attributed to a fallen exchange rate. Nigeria is a heavily import-dependent country. Almost everything we consume is imported. This means that we have a low level of domestic productivity. We are not, particularly, a productive nation when it comes to goods and services. “However, in the service area, we are doing a lot better. We have seen telecommunications and entertainment improve. Several Nigerian artists are doing quite well abroad and earning dollars but those dollars don’t come back into the system. There is low foreign repatriation of funds.
“I think the problem with the economy generally speaking is the Naira. When you look at the FAAC allocation in dollar-adjusted terms, there has really not been an increase in FAAC allocation. In real dollar terms, there has been a decline in FAAC allocation. There might be an increase in Naira terms but in dollar terms, they are worse off. High level of import dependence suggests that a huge amount of Naira is used to import goods that have declined in dollar terms,” he added.
Shitta-Bey opined that increasing the minimum wage isn’t the solution. Instead, the focus should be on fixing difficulties of foreign exchange supply.
“If the minimum wage is adjusted because the dollar has declined what you do is to reduce inflation. Domestic inflation needs to reduce because if I give you more money you will use more money to purchase more goods. The more you purchase more goods that are imported, the Naira value declines further. It’s like a dog chasing its own tail.
“As you increase wages, import demand will increase and the value of the Naira will decline. This will make you request more wages and as you ask for more wages you will ask for more foreign goods and as you ask for more foreign goods, the Naira will decline further. It is a never-ending cycle of wage increases. Increasing the minimum wage isn’t the problem, the problem is foreign exchange supply difficulties. If you want to solve the problem of domestic inflation, you definitely have to solve the problem of foreign exchange supply. The country will not achieve anything if it doesn’t solve the fundamental problem, which is the lack of adequate foreign exchange,” he suggested.
