Victor EzejaNigerian states’ dependence on the Federation Account Allocation Committee (FAAC) allocations for revenue has remained a significant issue for their fiscal sustainability.
FAAC allocations are funds distributed from the federal government to state and local governments, with oil crude sales being the major revenue source.
Join our WhatsApp ChannelA report by BudgIT, a civic-tech organisation, revealed that 25 states relied on FAAC allocations for not less than 60 per cent of their revenue in 2023.
The BudgIT’s 2024 State of States report released recently, highlighted the fiscal vulnerability of states across the country.
The report indicated that the combined revenue of all 36 states in Nigeria increased significantly by 31.2 per cent from N6.6 trillion in 2022 to N8.66 trillion.
“32 States relied on FAAC receipts for at least 55% of their total revenue, while 14 States relied on FAAC receipts for at least 70% of their total revenue,” the report stated.
As revealed in the BudgIT report we shall highlight 25 states across the federation that dependency on FAAC for at least 60 per cent of their total revenue in the 2023 fiscal year.
1. Bayelsa 92.17%
Bayelsa State located in South-south region ranks first in terms of dependency on FAAC in 2023. While the state recorded 47.87 per cent growth in Internally Generated Revenue (IGR), from N18.39 billion in 2022 to N27.20 billion in 2023, its income profile revealed heavy reliance on federal allocation, with FAAC revenue at N374.89 billion. This constituted 92.17 per cent of the total revenue.
This places the state in a precarious fiscal position. In terms of fiscal performance, the state ranked 35th out of 36 states in the 2024 Fiscal Performance ranking, according to BudgIT report.
2. Akwa Ibom 86.29%
Akwa Ibom, an oil-rich state also in South-south region, ranked number two in terms of dependency on FAAC allocations in 2023 to shore up revenue.
Akwa Ibom’s total revenue in 2023 was N483.51 billion. While it recorded a 29.79 per cent increase in its IGR from N33.41 billion in 2022 to N43.38 billion in 2023, Akwa Ibom state still relied heavily on FAAC allocations. It received N417.20 billion as federal allocation, which accounted for 86.3% of the total income.
“Essentially, Akwa Ibom heavily relies on FAAC, indicating the need to boost the state’s IGR by leveraging state-owned assets such as the Udom Emmanuel Towers (21 Storey Building), Ibom Icon Hotel and Golf Resorts, Four Points by Sheraton, Ibom Power Company, and many others,” the report recommended.
3. Delta 83.88%
Delta, another state in South-south ranked third in terms of states with high dependence on FAAC allocations.
While the IGR increased by 25.17 per cent from N79.87 billion in 2022 to N99.98 billion in 2023, the FAAC surged 28.89 per cent from N450.46 billion in 2022 to N580.60 billion in 2023.
The state had a total revenue of N692.20 billion in 2023. Out of this, FAAC allocation to the State amounted to N580.60 billion, representing 85.31 per cent of total state revenue.
While the state recorded growth in IGR, it still faces the challenge related to dependence on FAAC allocations.
4. Taraba 81.89%
Taraba is ranking fourth in dependence on FAAC allocation. Its FAAC for 2023 amounted to N94.23 billion, constituting 81.89 per cent of the total revenue receipts of N115.06 billion.
5. Niger 80.19%
Niger State was ranked fifth on dependency on federal allocations.
The state with a total revenue of N174 billion recorded in 2023 fiscal year, had FAAC inflows totalling N151.50 billion before statutory deductions, representing 87.06 per cent. The state’s IGR was relatively low at N22.5 billion.
6. Benue: 79.85%
Benue, in North-central, had a total revenue of N147.98 billion for the 2023 fiscal year. The state’s IGR which recorded a 28 per cent year-on-year increase from N15 billion in 2022 to N19.2 billion in 2023 of the total revenue of N147.98 billion. FAAC allocations amounted N118.16 billion representing 79.85 per cent.
7. Anambra: 76.94%
Anambra State, located in the South-east region, recorded a total revenue of N173.29 billion in 2023, a 49.4 per cent increase from N113.51 billion in 2022. Anambra State’s IGR increased by 24.29 per cent from N29.13 billion in 2022 to N36.20 billion in 2023. Anambra generated the second highest IGR in the South-east.
However, the state heavily depends on FAAC allocations to execute its budget. FAAC amounted to N133.33 billion, representing 76.94 per cent of the total revenue.
8. Bauchi: 75.33%
Bauchi State in North-east, ranked eighth on dependency on FAAC allocations in 2023. The state had N162.49 billion as total revenue, and a gross FAAC amounting to N122.41 billion which represents 75.33 per cent.
9. Cross River: 74.87%
Cross River in South-south region of the country, took ninth position in the state’s level of dependence on FAAC allocations for revenue.
The state had a total revenue of N166.32 billion. Out of this N124.51 billion, was FAAC allocations contribution, representing 74.87 per cent of the total revenue.
10. Nasarawa: 74.55%
The tenth in the ranking of state’s dependency is Nasarawa in the North Central region. Out of a total revenue of N170.75 billion, N127.29 billion was from FAAC, representing 74.55 per cent.
11. Gombe: 72.29%
Gombe in North-east had a total revenue of N152.83 billion in 2023, with FAAC contributing N110.49 billion (72.29 per cent). The gross FAAC increased by 53.24 per cent from N58.83 billion in 2022. Despite its IGR experiencing a growth of 14.49 per cent from N13.21billion in 2022 to N15.17 billion in 2023, it only contributed 9.93 per cent to its total receipts for the year under review.
12. Enugu 70.68%
Coming 12th in the ranking of states’ dependency on FAAC, Enugu State had a total revenue of N166.24 billion and gross FAAC amounting to N117.50 billion (70.68 per cent).
13. Edo: 70.24%
Edo in South-south had a total of N224.59 billion in 2023 with gross FAAC reported to be N157.75 billion.
14. Kano: 70.24%
Coming after Edo in ranking of states’ dependency on FAAC, Kano in North-west had N255.49 billion as total revenue, a 21 per cent increase from N211.19 billion in 2022. N179.45 billion was total federal allocations receives by the state. This is 26.69 per cent increase from N141.65 billion in 2022. The state’s IGR, however, experienced a 4.71 per cent decrease from N42.51 billion in 2022 to N40.51 billion in 2023.
15. Borno: 67.32%
Borno in North-east had N211.23 billion as total revenue and N142.19 billion from FAAC with 67.32 per cent as the state’s proportion of dependency on FAAC.
16. Abia: 66.78%
Abia in South-east recorded N160.40 billion in 2023, while FAAC constituted N107.11 billion.
17. Adamawa 65.70%
Adamawa in North-east reported N130.92 billion as total revenue and N86.02 billion as FAAC in 2023.
18. Imo 64.89%
Imo State recorded N151.60 billion as total revenue and N98.37 billion as gross allocations from the federal government.
19. Yobe: 64.65%
Yobe in North-east had a total revenue of N138 billion and N89.22 billion as FAAC.
The state recorded the second-lowest IGR ranking in the country, according.
20. Katsina: 64.21%
Katsina had N163.76 billion as total revenue and N105.14 billion.
21. Ekiti: 63.36%
N149.74 billion was generated as total revenue and N94.88 billion activities the report.
22. Jigawa 63.23%
The state raised N210.60 billion as total revenue and N133.16 billon as FAAC in 2023.
23. Kogi 61.29%
N151.80 billion was reported as total revenue of Kogi State in the 2023 fiscal year, while FAAC contributed N93.03 billion representing 61.19 per cent.
24. Rivers 60.44%
N561.73 billion was the total revenue of Rivers State in 2023. The oil-rich South-south state received a gross FAAC amounting to N339.52 billion which is 60.44 per cent, therefore ranking 24th in states dependency on FAAC in 2023. The state’s IGR rose by 6.09 per cent from N191.87 billion in 2022 to N203.56 billion in 2023. Rivers State recorded the second highest IGR in the country. However, a significant size of its revenue come from FAAC.
25. Osun. 60.11%
The Southwest state reported N154.97 billion as total revenue while the FAAC component was N93.15 billion.
Implications of States’ Dependency on FAAC Allocations
Here are some implications of States’ dependence on FAAC allocations
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Revenue Volatility: Since FAAC funds are heavily reliant on oil revenues, any fluctuation in global oil prices can significantly affect the amount available for distribution. This volatility can lead to instability in state budgets.
Limited Revenue Generation: as observed in BudgIT released reports over the years, many Nigerian states focus less on developing their internal revenue generation capabilities. Dependence on FAAC can discourage the implementation of sustainable strategies for boosting IGR through local taxes, business development, and investment in infrastructure.
Fiscal Mismanagement Risks: Analysts have also warned that reliance on external allocations can lead to complacency in financial management and planning. States may not prioritize expenditure efficiency or accountability, given that a substantial portion of their funding comes from federal allocations.
Need for Economic Diversification
To reduce dependency, states need to diversify their economies. This includes investing in agriculture, technology, manufacturing, and other sectors that can boost IGR and create jobs.
Policy and Structural Reforms
Implementing reforms aimed at financial accountability, transparency, and investment in key sectors is crucial. States could benefit from revisiting tax policies, improving collection mechanisms, and fostering a business-friendly environment.
Intergovernmental Collaboration: Enhanced collaboration between states and the federal government can help in designing policies that promote balanced fiscal federalism and equal opportunity for economic growth.
By focusing on these areas, Nigerian states can work towards reducing their dependence on FAAC allocations and building a more resilient economic framework.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
