The Federal and state governments are beginning to deal with shrinking revenue allocations as the impact of a 50 percent slide in oil prices starts to hit home, resulting in squeezed budgets.
Available data from the Central Bank of Nigeria (CBN) shows that estimated federally – collected revenue in October 2014, at N743.57 billion, was lower than both the monthly budget estimate and the receipts in the preceding month by 18.0 and 10.6 per cent, respectively.
“The decline in estimated federally – collected revenue (gross) relative to the monthly budget estimate, was largely attributable to the shortfall in receipts from oil revenue during the review month,” the CBN said in its recently released Economic Report for the month of October.
Oil revenues account for up to 75 percent of the Federal budget and in some states, it goes as high as 97 percent.
The distribution from the Federation Accounts Allocation Committee (FAAC) to the three tiers of government in October declined to N594bn from N601bn the previous month.
The gross Federation Account revenue – which has been declining since the sell-off in crude oil – was N1.034 trillion in June, N953.6 billion in July, N859.6 billion in August, N831.8 billion in September, and N743.6 billion in October, CBN data show.
“Nigeria’s Achilles heel has been exposed to the slide in the oil price since June, which is evident from the monthly flows into the Federation Account,” said Gregory Kronsten, head of Macroeconomic and Fixed Income Research, FBN Capital, in a Dec. 30 note.
“The trend, however, is downwards and is likely to remain so, at least for the months of November and December,” Kronsten said.
The estimated Federal Government retained revenue for October 2014 of N 278.79 billion, was below both the monthly budget estimate and receipts in the preceding month by 21.6 per cent, and 1.4 per cent, respectively, data from the CBN showed.
Total Statutory Allocation to the state governments stood at N210.20 billion in October 2014, which was 13.3 per cent below the monthly budget estimate.
Most Nigerian states, except Lagos, are ill-prepared to adjust for a prolonged slide in oil prices the most recent internally generated revenue (IGR) data from the National Bureau of Statistics (NBS), show.
Lagos state in South-West Nigeria, had internally generated revenues of N384.25 billion, equivalent to 76.9 percent of its 2013 budget of N499.10 billion.
No other state was able to go beyond the 30 percent mark for IGR as a percentage of budgeted expenditure for 2013, the NBS data showed.
Oil is set for the biggest annual decline since 2008, as the highest U.S. production in more than three decades contributed to a global surplus estimated by OPEC member Qatar, at two million barrels a day.
Brent for February settlement fell 30 cents, or 0.5 percent, to $57.58 a barrel on the London-based ICE Futures Europe exchange on Tuesday, trading 11.4 percent below Finance Minister Ngozi Okonjo – Iweala’s proposed $65 per barrel benchmark for the 2015 budget.
If the decline of crude oil prices in the global market continues for another three months, states’ economies will collapse, warned Governor Babangida Aliyu of Niger State, at an event this month.
“Five states are close to bankruptcy and cannot pay salaries as we speak,” said Bismarck Rewane, CEO of Financial Derivatives Company, at the BusinesDay energy conference held in November.
