The gross monthly distribution by the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to N760.23bn in October (from September revenue). This shows an increase of 12.9% m/m or N87.1bn from the previous payout. Based on data from the local media, the increase was mainly from oil and gas royalties. Meanwhile, petroleum profit tax (PPT) and excise duties recorded marginal increases. However, we learnt that companies’ income tax (CIT), value added tax (VAT) and import duty recorded decreases over the previous month. The FGN received a total of N294.2bn and state governments received N233.2bn, including N59.9bn representing the 13% derivation for the oil producing states.
The headline figure consists of N502.1bn in gross statutory distribution, N189.9bn from the VAT Pool, and N8.2bn from Electronic Money Transfer Levy (EMTL). The total deduction for cost of collection was N34.4bn while total deductions for transfers, savings and refunds was N303.5bn. As at October ’22, the average monthly FAAC distribution for the year stood at N722.2bn, an increase from the average of N677.2bn recorded in the corresponding period of 2021.
The committee disclosed that the balance in the Excess Crude Account (ECA) increased slightly from USD470.5m in September ’22 to USD472.5m.
On the back of FAAC allocation, money markets received an inflow of N465.9bn in early November ‘22, representing the net FAAC distribution to state and local governments (a positive for market liquidity). The FGN’s share is directly to the treasury single account.
We understand that the NNPC has made no remittance to the federation account this year largely due to high fuel subsidy costs. The FGN planned to spend N4trn on subsidy payments this year. However, as at July ’22, NNPC had spent N2.04trn on fuel subsidy payments. This is compared with N1.5trn that was spent on subsidy payments in FY2021.
We note that the FGN plans to end fuel subsidy payments by end-June ’22 and has provided N3.36trn in the proposed 2023 FGN budget, based on the 18-month extension announced early 2022.
To navigate the current fiscal headwinds, effective implementation of the FGN’s strategic revenue initiatives for 2023 is important, to boost non-oil revenue. Additionally, there is a need for the FGN to properly channel its borrowed funds towards well-targeted expenses that would ease supply-chain bottlenecks and support GDP growth.
Recently, the World Bank reaffirmed its readiness to support the FGN in phasing out the fuel subsidy regime, while increasing social assistance for the poor and vulnerable.
Given that the FGN’s revenue is susceptible to economic shocks, the heavy reliance of most states on FAAC payouts to implement their budget is unsustainable. Forward steps towards boosting internally generated revenue include prioritising spending on infrastructure, job creation and human capital development.
SOURCE: Coronation Merchant Bank Limited