The Nigeria Extractive Industries Transparency Initiative (NEITI) released its FAAC Quarterly Review, revealing a complex interplay of record-high disbursements and concerning debt deductions impacting state governments in 2024. The report highlights the financial strain faced by states despite a significant increase in allocations from the Federation Accounts Allocation Committee (FAAC), primarily due to deductions for foreign debt servicing and other contractual obligations. This situation underscores the challenges of balancing increased revenue with rising debt burdens and the need for sustainable fiscal management practices.
Total FAAC disbursements in 2024 reached an unprecedented N15.26 trillion, a 43% surge compared to the previous year. This dramatic increase was largely attributed to key fiscal reforms implemented by the Federal Government, including the removal of fuel subsidies and adjustments to the foreign exchange policy. These measures resulted in a substantial boost in oil revenue remittances, contributing significantly to the overall rise in FAAC allocations. Of the total disbursed funds, the Federal Government received N4.95 trillion, state governments received N5.81 trillion, and local governments received N3.77 trillion. State governments experienced the highest percentage increase in allocations, with a 62% jump from N3.58 trillion in 2023 to N5.81 trillion in 2024.
However, despite this significant increase, a substantial portion of the allocated funds was deducted at source to service foreign debts and other contractual obligations. A total of N800 billion, representing 12.3% of the total allocations to the 36 states (including derivation revenue), was withheld for debt servicing. This deduction placed a considerable financial burden on several states, particularly those with lower revenue streams, hindering their ability to invest in critical development projects and social programs.
The distribution of debt deductions varied significantly among states. Lagos State bore the highest burden, with N164.7 billion deducted, accounting for over 20% of the total deductions. Kaduna State followed with N51.2 billion, while Rivers and Bauchi states faced deductions of N38.6 billion and N37.2 billion, respectively. The report highlighted a concerning trend where states with high debt burdens were often among those with lower FAAC allocations, raising red flags about their debt-to-revenue ratios and long-term fiscal sustainability. This disparity emphasizes the need for careful debt management and revenue diversification to avoid a fiscal crisis in these states.
The report attributes the surge in FAAC disbursements to significant fiscal reforms, primarily the removal of fuel subsidies in mid-2023 and adjustments to foreign exchange policies. These measures, while leading to a more than 400% increase in naira-denominated mineral revenues, also introduced new economic challenges. These include inflationary pressures, escalating debt servicing costs, and increased fiscal uncertainty for states heavily reliant on oil revenues. While the increased revenue is welcomed, the accompanying challenges underscore the need for a more diversified and resilient economic base.
A closer look at the distribution of FAAC allocations reveals significant disparities among states. Lagos State received the highest allocation with N531.1 billion, followed by Delta State with N450.4 billion and Rivers State with N349.9 billion. On the lower end of the spectrum, Nasarawa, Ebonyi, and Ekiti states received the least allocations, amounting to N108.3 billion, N110 billion, and N111.9 billion respectively. The six states with the highest allocations – Lagos, Rivers, Bayelsa, Akwa Ibom, Delta, and Kano – accounted for 33% of the total allocations to states. In contrast, the six states with the lowest allocations – Yobe, Gombe, Kwara, Ekiti, Ebonyi, and Nasarawa – received only 11.5% of the total. This unequal distribution further highlights the need for policies that promote balanced regional development and ensure equitable resource allocation.
In light of these findings, NEITI recommends a series of urgent measures to mitigate economic risks and ensure sustainable revenue growth. These include stabilizing the exchange rate to curb inflation, adopting conservative crude oil price and production estimates to avoid budget shortfalls, and diversifying revenue sources beyond the volatile oil and gas sector. Furthermore, NEITI urges all tiers of government to strengthen internal revenue generation mechanisms and improve fiscal transparency, aligning with the principles of the Open Government Partnership and the Extractive Industries Transparency Initiative. The emphasis on accountability in managing public resources is paramount, and stakeholders are encouraged to utilize the report’s findings to effectively monitor government spending and advocate for responsible fiscal practices. These recommendations aim to promote long-term economic stability and ensure that the benefits of increased revenue are effectively utilized for sustainable development and improved public welfare.
