Abuja, Nigeria – Amid a notable increase in revenue allocations from the Federation Account Allocation Committee (FAAC), 21 states in Nigeria are seeking loans amounting to N1.65 trillion to cover their 2024 budget deficits. This development comes despite the significant rise in FAAC allocations to states and local governments, driven by the removal of petrol subsidies by the federal government in May 2023.
Over the past year, from June 2023 to June 2024, Nigeria’s 36 states and 774 local governments received a total of N7.6 trillion from FAAC. The projected FAAC disbursement for 2024 is N5.54 trillion, up from N3.3 trillion last year. Under the current revenue-sharing formula, the federal government receives 52.68%, while states and local governments get 26.72% and 20.60% respectively.
Despite this increase in revenue, states like Anambra (seeking N245 billion), Imo (N271.34 billion), Kaduna (N150.1 billion), and Katsina (N163.87 billion) are among the 21 states planning to borrow substantial amounts to finance their budget shortfalls. These states cite ongoing budgetary pressures and the need to fund development projects as reasons for the loans.
Rising FAAC Allocations and Accountability Concerns
In the past year, FAAC allocations to states have consistently increased, with states receiving N299.92 billion in June 2023, and up to N461.979 billion by June 2024. Local governments have similarly benefited from these increases. Allocations from Value Added Tax (VAT) also rose by 228.8% to N2.42 trillion in the first five months of 2024, compared to N736.06 billion in the same period in 2023. The 13% derivation fund for oil-producing states also saw a 234% increase.
Experts, however, are raising concerns about the accountability of how these increased revenues are being spent. Umar Yakubu, Executive Director of the Centre for Fiscal Transparency and Public Integrity, emphasized the need for stronger accountability mechanisms to prevent misuse of funds. He noted that despite the revenue increase, there has been little improvement in governance at the state level, with no significant recruitment, pension increases, or capital expenditures.
Victor Agi, a development expert, echoed these concerns, pointing out that despite the increased revenues, governors have failed to enhance the welfare of workers or improve grassroots development. He called for greater awareness and accountability at the sub-national level to ensure that the increased revenues translate into tangible benefits for the people.
Potential Impact on Development
The increase in FAAC allocations could have a significant impact on development if properly managed. For example, 20% of the June 2024 allocation, amounting to N160 billion, could fund the establishment of 320 primary healthcare centers across the country, based on World Health Organization (WHO) standards. However, the effectiveness of such investments is contingent on the proper use and management of the funds.
The ongoing trend of states seeking additional loans despite increased FAAC allocations underscores the need for stringent financial management and transparency to ensure that the funds are used to address the developmental needs of the population rather than being siphoned off through corruption.