Weak Revenue Profile: Analysts Predict Bailouts for States

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Nigeria’s Balance of Payment Plunged to Deficits in Q1. The Nigeria’s balance of payment (BoP) has slipped to $11.18 billion deficit in the first quarter of 2020 according to data released by the apex bank.
President Muhammadu Buhari

Weak Revenue Profile: Analysts Predict Bailouts for States

There is an indication that some states would need Federal Government bailouts to survive, finance 2020 budget due to reduced revenue generation.

Economic activities have slowed down significantly, thus limit ability for state governments to raise earnings.

FSDH Research in its macroeconomic note said many states governments will experience difficulty in financing their budgets given the expected decline revenues.

The group hinge the prediction on expected decline in FAAC allocations and Internally Generated Revenue.

The drop in revenue, FSDH explained that if follows stifled economic activities as a result of lockdown and other restrictions.

In 2019, net FAAC allocations to the 36 states of the federation and the FCT totaled ₦2.47 trillion.

Bailouts for States
President Muhammadu Buhari

Meanwhile, in the first quarter of 2020, allocations to state governments stood at ₦669 billion.

FSDH explained that with the anticipated lower revenue profile as a result of COVID-19 and its impact, revenues shared among the 3 tiers of government is expected to decline in the year.

According to the Minister of Finance, Budget and National Planning, FAAC receipts must average at least ₦650 billion for the Federal and State Governments to meet their current obligations.

“Given this, many state governments will experience difficulty in financing their budgets.

“Especially given the expected decline in FAAC allocations and Internally Generated Revenue following the stifled economic activities as a result of lockdown and other restrictions”, analysts held.

Analysts held that a worse-case scenario would imply that many states would be unable to pay workers’ salaries as experienced in 2016.

“This will trigger another round of bailouts for states by the federal government”, FSDH reckoned.

On a brighter scenario, improvement in oil price will lead to an increase in revenues for states governments.

Already, the President has approved the withdrawal of US$150 million from the Nigeria Sovereign Investment Authority Stabilization Fund to support the June 2020 FAAC disbursement and address emerging fiscal risks.

Weak Revenue Profile: Analysts Predict Bailouts for States