The incoming administration has a tough task ahead on how to generate resources for its operations as a persistent drop in revenue poses a severe cash crunch challenge for the government.
LEADERSHIP findings indicate that the N388.34 billion federal allocation distributed to the three tiers of government for the month of April is the lowest recorded in well over two years.
The last time such dismal performance was recorded was in 2007 and 2008 during the global economic crisis when oil prices fell to $38 per barrel.
The Federal Accounts Allocation Committee (FAAC) on Friday said that gross revenues declined to its lowest in recent times to N282.06 billion in April 2015, which according to the committee chairman and minister of state for finance, Dr Bashir Yuguda, was due to frequent shutdown in oil production facilities which continued to impact negatively on crude oil revenues as well as the fall in global oil price.
Gross revenues have been declining steadily since the oil prices started its downward slide since last year. From N480 billion realised in December 2014, revenues have declined steadily throughout this year: N416.09 billion in January, N401.46 billion in February and N315.04 billion in March before hitting the lowest – N282.06 billion – in April.
Despite the persistent decline in revenues, the three tiers of government have been sharing allocations above the average monthly revenues. In December 2014, it was a total of N580.4 billion, N500.13 in January, N522.05 billion in February, N435.06 billion in March and N388.3 billion in April.
All efforts to get the coordinating minister of the economy Dr Ngozi Okonjo-Iweala’s comment on this development were unsuccessful at the time of filing this report as her special adviser, Media, Constance Ikokwu, did not answer her calls or respond to our text message.
Financial analysts believe that the current situation portends severe crisis for the incoming government at all levels and particularly at the federal level.
This is more so since the country lacks the buffers in terms of savings to fall back as was the case during the 2007/2008 crisis period.
Managing director of RTC Advisory Services Ltd, Opeyemi Agbaje, noted that without the savings in the excess crude account to fall back on, the incoming government would have little or no choice other than to cut the cost of governance.
“The falling revenue allocation to state and local governments is due to a reduced income from the major income generating crude. Whether the government likes it or not, we have to deal with the cost of administration and reduce the size of government,” Agbaje said.
He pointed out the need to diversifying the economy, by diversifying the exports of the country so as to generate more foreign exchange and stressed the important role that tax will have to play in generating revenue for the government.
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Dr Biodun Adedipe is a consultant with B. Adedipe Associates Ltd.
“The prognosis is that it is unlikely that the price of crude oil per barrel will rise beyond $60-70 in the near future,” he said, adding that this will affect the revenue of government of countries that depend heavily on oil for its income as well as companies operating in the industry
According to him, there is the likelihood for operators to look at how to reduce overheads and the first component of such will be labour.
Adedipe, a specialist in corporate finance, noted that to compound the situation, IOCs are presently selling off their onshore assets to indigenous investors and concentrating on offshore, which is already leading to retrenchment of staff.
“I do not see the indigenous investors starting production immediately because they need foreign expertise. So there will be a gap for affected employees that are being laid off by IOCs and those that will be affected by the fall in oil price between now and when they will start production when the industry will begin to stabilise again.”
To the director-general of Lagos Chamber of Commerce and Industry (LCCI), Mr Muda Yusuf, the government at all levels would not be able to meet many of its obligation, with some state governments and some federal agencies already unable to pay staff salaries for six months.
He pointed out that this will lead to government being indebted to contractors which will in turn negatively affect delivery of social services in the country.
Looking at ways the government can get money to fund it activities, Muda advocated that all the three tiers of government need to plug leakages, saying high level corruption was evident at all levels of government.
According to him, there is need to address the issue of federalism and the quantity resources go to the central government.
“If the state wants to generate internal revenue, the only one it has access to is the internal tax. The company, even the foreign investors tax goes to the central.
“There is need to improve on the efficiency of the tax system as many people are not paying tax especially those in the informal sector. The focus of tax should move from direct tax to indirect tax,” he said.
On his part, the managing director of Highcap Securities Ltd, Mr David Adonri, noted that almost all state governments rely primarily on statutory allocations to perform basic functions and are totally handicapped without them.
“With the decline in price of oil which is the main revenue of the country, this means there is a greater need for the three tiers of governments to consider alternatives for revenue generation.
“The oil dependency only encouraged government officials to pay little attention to growing the economic base which would have helped the states become more independent.”
He pointed out that state should be forced to generate their income internally to become self-sufficient, and expressed hope that the pressure to diversify and focus less on the centre will force states to explore alternatives towards improving their revenue base.
He remarked that Lagos remains self-sufficient and generates at least 75 per cent of its revenue from its internally generated revenue (IGR).
To the managing director of Investdata Consulting Ltd, Mr Ambrose Omordion stated, “this is the time for us as Nigerians to call on leadership, both at the federal and state levels, to create transparent plans to support economic diversification and implement those plans with public oversight, transparency and accountability.”
He said that the government should make complementary investments in public infrastructure and human capital.
He proposed the following solution: “Diversify revenue sources by broadening the tax base and collecting taxes efficiently, transparently and fairly. It is important to remember that well-targeted public policies, regulations and investments in key sectors can contribute to growth, which will lead to growth in government revenue,” Omordion said.
(Leadesrhip)