Crisis? What crisis? Nigeria revenue pressure blows up

By Moses Obajemu

• ECA‭, ‬reserves‭, ‬monthly allocations dip

The pressure on Nigeria’s revenue that has been the subject of many discussions over the last few years appears to have started exploding with signs now appearing to show that the nation has started reeling from a revenue crisis.

It follows from the clear dwindling of the monthly revenue pay-out from the Federation Account Allocation Committee (FAAC), depleting excess crude account (ECA), and a free fall in external reserves.

The gross monthly pay-out by the Federation Account Allocation Committee (FAAC) to the three tiers of government amounted to N716 billion in December 2019 but fell to N647 billion in January 2020. This represents a N69 billion shortfall

The committee’s communiqué last week revealed that receipts from import duty were impressive and rose in the month, whereas those from petroleum profit tax, companies’ income tax, VAT, and oil and gas royalties decreased.

The communiqué noted a fall in inflows from the Federal Inland Revenue Service. Collection by the service is generally at its lowest in the first quarter.

Similarly, the balance in the excess crude account declined from US$325 million to US$72 million over the month.   

The Lagos Chamber of Commerce and Industry said the depletion of the country’s excess crude (ECA) account signalled pressure on government revenues.

The federal government depleted the excess crude account by $253.1 million between January 16 and February 19, 2020.

As at the end of the Federal Accounts Allocation Committee meeting on January 16, the amount in the ECA was put at $324.96 million.

However, at the end of the FAAC meeting on Wednesday, the balance in the ECA, according to a statement from the office of accountant general of the federation, was put at $71.81m.

The ECA, which was created by former President Olusegun Obasanjo in 2004 for the purpose of saving oil revenue in excess of the budgeted benchmark, had a balance of $20 billion in January 2009.

Muda Yusuf, the director general of LCCI, said that it was difficult to sustain the ECA in the face of financial pressure.

He said, “The reality is that there are profound revenue challenges at all levels of government, which is why the excess crude account has come under pressure.

“It is difficult to sustain the excess crude account in the face of such pressures.  There is strong temptation to draw down on the savings, which the excess crude account represents.

“One key factor is the weak oil prices and ballooning expenditure, especially recurrent spending. This naturally affects the fiscal stability of the various tiers and levels of government.”

Yusuf said these shocks would remain as long as the country remained critically dependent on crude oil both for revenue and foreign exchange earnings.

“Failure to check the growing cost of governance is also a key concern,” he said.

Another index of the country’s revenue crisis is continuous fall of the nation’s foreign exchange reserves which dropped by $1.64 billion from $38.34 billion on January 15, 2020 to $36.69 billion on February 20 going by the figures from the Central Bank of Nigeria.

According to the figures, the reserves dropped from $39.8 billion on November 11, 2019 to $39.24 billion on December 13, after falling by $1.26 billion from $41.76 billion on October 2 to $40.5 billion as of the end of October.

The reserves dropped by $482.18 million from N45.14 billion as of July 8 to $44.65 billion on August 8.