According to the World Bank, Nigerian states would likely lose N18.8 billion in oil and gas earnings in 2022 as federal revenue collection deteriorates, increasing budgetary strains on the states.
The Washington-based bank stated this in its Nigeria Development Update report, headlined ‘The Continuing Urgency of Business Unusual.’
According to the lending bank, dwindling federal funding has left several states in a difficult budgetary position. The bank cautioned that many states would be unable to fulfill their expenses and that state debt service expenditures have increased.
The report read in part, “With net oil and gas revenues stagnating, most states will not be able to achieve their intended levels of expenditures in 2022.
“In addition, debt servicing expenditures at the state level are also mounting due to a decline in gross statutory account revenue transfers from the federation account allocation committee, which comprises oil and non-value added tax, non-oil revenues.”
The bank further said that the expected higher VAT collection or improvements in independently generated revenues would not compensate for the lower transfers from the Federation Accounts Allocation Committee (FAAC) in 2022.
The financial institution also warned that there would be a 2.7 percent decline in FAAC transfers in 2022 compared to 2021, adding that this decline would push states to borrow more and slash discretionary expenditure.
“Stagnating net oil revenues will significantly affect the fiscal situation at the state level. State governments are projected to collectively receive 2.7 percent fewer revenues than in 2021, as federal transfers are estimated to decline by 10 percent against 2020 levels.
“Lower transfers will cause state governments to incur debt or drastically slash discretionary expenditure. Although states receive the majority of VAT revenues, VAT increases would not compensate for the loss of net oil revenues.
“As a result, in 2022, the average state in Nigeria will lose N18.8bn in oil and gas revenues, while optimistic projections place average gains from VAT and the electronic money transfer Levy at N7.1bn per state, and average increases in each state’s independent revenues at N6.7bn. As a result, the average state can expect to lose N5bn in revenue in 2022,” the report stated.
The Nigerian National Petroleum Company Limited (NNPC) might deduct over N1tn in the next six months from the Federation Accounts Allocation Committee, following the decision of the Federal Government to continue subsidizing Premium Motor Spirit, popularly called petrol.
Figures obtained from the oil firm on its subsidy deductions in 2021 indicated that the amount deducted monthly from FAAC by the NNPC was higher during higher crude oil prices.