States in the country now rely less on federal allocations as latest statistics released by the Central Bank of Nigeria (CBN) have revealed significant increase in their Internally Generated Revenues (IGRs).
The CBN data for 2014 revealed that internally generated revenue provided 21.8 per cent of the total revenue of the 36 states and the Federal Capital Territory (FCT), compared with 15.3 per cent the previous year.
Analysis of the data showed that aggregate IGR grew by 37 per cent to N801 billion ($4.0 billion) from N586 billion in 2013.
Again, Lagos emerged as the leading state, achieving an IGR/total revenue ratio of 67 per cent while Ogun, Rivers and Anambra States recorded 40 per cent, 32 per cent and 31 per cent respectively.
Given that the oil price has been on the slide since mid-2014, analysts posit that states have no choice than to reduce their dependence on the oil-driven monthly distributions from the FAAC by bolstering their IGR.
The CBN data also revealed that Value Added Tax (VAT) receipts stood at N389 billion, representing 10.6 per cent of total revenue in 2014.
The Minister of Budget and National Planning, Udo Udoma, recently disclosed that there would be no increase in the standard 5 per cent rate of VAT “at the moment.”
This, analysts stressed, means that states will have to make do with what they are getting at the moment.
Analysts at FBN Quest stressed that states must double their efforts at raising their IGR since a good number of them are highly indebted.
According to the Debt Management Office (DMO), “states’ domestic debt at end-2014 amounted to N1.7 trillion. Lagos has the best record for IGR and is also the largest debtor among the states, with total domestic obligations of N268 billion. The figures include arrears due, for example, to contractors and employees.’
“The total at end-2014 was reduced last year by the restructuring of many states’ bank borrowings into FGN bonds. This operation, supervised by the DMO, was then balanced, even undermined in the eyes of some, by the CBN rescue facility for the states, “said FBN Capital.
Recently, the state governments were advised to lay less emphasis on supply-focused strategies such as increase taxes, blockage of leakages, and diversification of the revenue base through increased focus on agriculture, increased focus on solid minerals, in tackling the current revenue challenge facing the country.
This was contained in a report on the public sector in the country put together by H. Pierson Associates
The report stated that, while these remained strong and viable options, there was an even stronger need for a demand-side focus.
Such a demand-side focus, the report stressed, requires that state and federal entities give more strategic attention to maximising the application of available resources through more sensible and optimal deployment of available funds.
“This involves better medium-term planning of projects and programmes where funds are most needed to be applied and defining high standards of quality for the desired outputs from all such spending. Also key is prudent value-for-money costing of the projects and programmes and importantly, effective monitoring to ensure timely implementation against plan.
“The report emphasises that the key focus here is on effective medium-term prioritisation and planning of projects and programs by states and federal government MDAs, high standards definition, appropriate costing, water-tight monitoring, evaluation, reporting and constant re-alignment to stay within the plan. An over-riding element here is a leadership that gives full backing to the framework.
It added: “As the federal government, states governments and their ministries, departments and Agencies (MDAs) continue to experience the impact of diminished revenues from the federal allocation and their internally generated revenue, the key concern for everyone is how to quickly alleviate the current position. Concerns range from the adverse impact on projects and programmes of government, to their inability to pay for basic recurrent expenditure. As the potential for further downward push in oil prices persists, this pressure on state and federal governments remains real.”