Marginal Decline in the FAAC Monthly Payout – Coronation Merchant Bank

The latest gross monthly distribution for the Federation Account Allocation Committee (FAAC) to the three tiers of government and public agencies amounted to N714.6bn in April (from March revenue).

This was a decline of -1.1% or N8bn from the previous payout (N722.7bn recorded in February).

From thin coverage in the local media, we learnt that the take from companies’ income tax, electronic money transfer levy, import and excise duty, and oil and gas royalties recorded substantial increases over the previous month, while receipt from VAT was significantly lower.

The NNPC has made zero remittances to the federation account since 2022. The trend in total FAAC distributions has averaged of NGN710bn in 2018, NGN685bn in 2019, NGN636bn in 2020, N670.7bn in 2021 and N738.5bn in 2022.

In April, the FGN received a total of N276.1bn while state governments received N232.1bn. Oil producing states received an additional N35.1bn representing the 13% derivation for mineral revenue. The headline figure consisted of a N497.4bn gross statutory distribution, which is a 35% m/m increase from N366.8bn recorded in the previous month.

Furthermore, N202.6bn came into the VAT pool (vs N224.2bn recorded in the previous month), and N14.5bn from Electronic Money Transfer Levy (EMTL). The total deduction for cost of collection was N31.4bn.

We understand that the balance in the Excess Crude Oil Account (ECA) remained unchanged from the previous month at USD473.7m. This is relatively low compared to 2014 when it was as high as USD4.1bn. Underproduction in the oil sector and costly PMS subsidy payments continue to impact revenue accretion.

Recently, the World Bank re-affirmed its readiness to support the FGN in cushioning the impact of the expected PMS subsidy removal on Nigerians by providing an USD800m credit facility.

A small number of states, led by Lagos, can meet their obligations despite FAAC distribution levels because they collect substantial sums of internally generated revenue. However, the reliance of most states on FAAC payouts to implement their budget seems unsustainable amid the FGN’s dwindling revenue.

Therefore, pragmatic steps targeted at boosting internally generated revenue should be prioritized by the respective state governments by broadening the tax net and leveraging technology to boost revenue, among others.