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FAAC allocations may affect implementation of 2016 budget, increase deficit —Reports

NIGERIA Extractive Industries Transparency Initiative (NEITI), on Monday, stated that disbursements from the Federation Account to the three tiers of government plunged by 30 per cent in the first half of 2016 when compared to the corresponding half of 2015, might negatively affect implementation of 2016 budget.

A new report by NEITI showed that this sharp drop in the revenues might negatively impact budget implementation across the three tiers of government in 2016, increase the size of budget deficits and deepen the debt burden.

With the sharp drop in the allocations to the three tiers, governments might be unable to fund their budgets in 2016 unless they resort to borrowing, which the report revealed, was the norm even during times of greater revenues and higher allocations from FAAC.

While borrowing might be necessary to increase government’s capacity to spend, especially when the country was in economic recession, the report stated that more borrowing would “deepen budget deficits and debt burden across the three tiers of government”.

In a new report issued by NEITI and signed by Obiageli Onuorah, titled: “FAAC Disbursements in First Half of 2016 and Possible Implications”, a copy of which was made available to the Nigerian Tribune in Abuja, indicated that revenues shared to the Federal, States and Local Governments were less by over N800 billion from N2.89 billion in 2015 to N2.01 billion in 2016.

This 30 per cent, decline, according to the report, reflected in lower allocations across the board.

“Total disbursements to the Federal Government fell from N1.23 trillion in the first half of 2015 to N854 billion in the first half of 2016. This represents a 30.9 per cent decline. Total disbursements to states fell by 30.5 per cent from N1.009 trillion in the first half of 2015 to N701 billion in the first half of 2016. For Local Governments, allocations from FAAC dropped by 26% from N580.63 billion to N429.43 billion.

“The reasons for the plunge in allocations include: the drastic fall in oil prices, lower oil production due to militancy activities, and lower non-oil revenues as a result of lower taxes arising from contraction in government spending, fall in consumption and investment expenditures and decline in economic activities”, it added.

The report was, however, optimistic that while the trend was that allocations were mostly lower in the second half of the year than in the first half, 2016 might be different with the resurgence in oil prices, decrease in the disruption of crude oil production by militants and exchange rate gains.