An Uptick in The FAAC Payout

The latest gross monthly distribution for the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to N990bn in January (from December revenue).

This was an increase of 9.8% or N88.1bn from the previous payout (N902bn recorded in November ’22) and marks the highest FAAC payout recorded in 2022. The increase can be partly attributed to improved non-oil revenue collection. Based on data from the local media, Companies’ Income Tax (CIT), VAT, oil and gas royalties and export duties recorded increases while import duties declined significantly.

The FGN received a total of N375.3bn while state governments received N299.6bn. Furthermore, oil-producing states received an additional N93.5bn representing the 13% derivation for mineral revenue. The headline figure consisted of N707.8bn gross statutory distribution.

This is a month on month increase of 3.9%. Additionally, N233.3bn came into the VAT pool, and N24.3bn from Electronic Money Transfer Levy (EMTL). The total deduction for cost of collection was N31.5bn.

Furthermore, the committee disclosed that the Excess Crude Account (ECA) remained unchanged from the previous month at USD473.7m. Despite elevated oil prices which were above the FGN’s 2022 oil price benchmark (USD73/barrel), the ECA has remained relatively low. In 2014, the ECA was as high as USD4.1bn.

It is worth highlighting that the NNPC made zero contributions to FAAC in 2022, largely due to high fuel subsidy costs. According to the NNPC, the total cumulative subsidy deductions stood at N2.04trn in July ’22 vs N1.5trn spent in 2021. The shortfall in oil revenue was partly offset by relatively higher non-oil revenue collection.

The net FAAC distribution to states and local governments hit the money market last week, as an inflow of N650bn was recorded, which supported market liquidity. We note that the FGN’s share of the FAAC allocation (c.N375bn) is transferred directly to the treasury single account.

To avoid overreliance on FAAC distributions and ensure more resilience against future shocks, state governments need to diversify their revenue base. Unemployment and underemployment continue to cost states billions of naira in forgone revenue through payment of income taxes (PAYE). To boost IGR, states should consider providing incentives for the private sector to support economic activities within their respective states.