32 Nigerian States heavily depend on FAAC – Report

A new report by civic-tech organization BudgIT has revealed that 32 of Nigeria’s 36 states depended on the Federal Account Allocation Committee (FAAC) for at least 55% of their revenue in 2023.

Released in BudgIT’s 2024 State of States report, the findings underscore state governments’ dependence on federal revenue, particularly oil-derived income, making them susceptible to economic fluctuations tied to global oil prices.

The report highlights that 14 states drew 70% or more of their total revenue from FAAC allocations, with 34 states excluding Lagos and Ogun receiving at least 62% of their recurrent revenue from federal transfers. Notably, 21 states relied on these federal contributions for over 80% of their operational revenue.

Despite this dependence, the report points to improved fiscal performance, with the total revenue for all states rising by 31.2% from N6.6 trillion in 2022 to N8.66 trillion in 2023. Lagos alone generated N1.24 trillion, accounting for 14.32% of the nation’s cumulative state revenue. FAAC disbursements, which grew by 33.19% from N4.05 trillion in 2022 to N5.4 trillion in 2023, played a significant role in this growth, contributing to 65% of the year-on-year revenue increase for the states.

“32 states relied on FAAC receipts for at least 55 per cent of their total revenue, while 14 states relied on FAAC receipts for at least 70 per cent of their total revenue.

“Furthermore, transfers to states from the federation account comprised at least 62 per cent of the recurrent revenue of 34 states, except Lagos and Ogun, while 21 states relied on federal transfers for at least 80 per cent of their recurrent revenue.

“The picture painted above buttresses the over-reliance of the state governments on federally distributable revenue and accentuates their vulnerability to crude oil-induced shocks and other external shocks.”

The report provides a detailed analysis of states’ fiscal sustainability, examining how well they balance internally generated revenue against federal allocations.

On Internally Generated Revenue (IGR) by the states, the report said the domestic resource mobilisation capacity of the state governments seemed to improve in 2023, as the 36 states’ IGR grew by 20.33 per cent to N2.19tn from the N1.82tn garnered in 2022.

However, it was mixed fortunes for the states as the growth was unequal across the board: six states grew their IGR by more than 50 per cent, with Zamfara recording the highest growth of 240.22 per cent, while seven states recorded negative IGR growth, with Jigawa recording the worst decline among the 36 states.

Lagos State was the largest contributor to total state revenue, accounting for N1.24tn, or 14.32 per cent of the cumulative revenue.

The report also highlighted that only Lagos and Rivers states were able to generate enough IGR to cover their operating expenses, with IGR-to-operating-cost ratios of 118.39 per cent and 121.26 per cent, respectively.

On the other hand, states such as Akwa Ibom, Bayelsa, and Taraba required over five times their IGR to meet operating expenses, relying heavily on federal transfers and external aid.

BudgIT advised “The fiscal viability and long-term sustainability of the states are largely dependent on their capacity to mobilise revenues internally—leveraging their natural resource endowments, technology, public-private partnerships, human capital, and consequence management adequate enough to finance critical infrastructure, invest in human capital development and social protection, pay the new minimum wage and its consequential adjustments, and amend the broken social contract.

“More specifically, the states would need to digitise revenue collection, eliminate cash-based transactions, deploy tax intelligence to enumerate tax liabilities of entities particularly high net-worth individuals and enforce compliance, harmonise its different taxes, levies and fees, fully operationalise its treasury single account, and improve the ease of doing business.”