2 November 2012

Nigeria: No Money for New Revenue Sharing Formula - RMAFC

The process of formulating a new revenue sharing formula has suffered a major setback as the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), the body mandated to fashion out the revenue formula, admitted that it has run out of funds to complete the process.

The commission also appeared completely uncertain about the likely date a new revenue sharing formula would be adopted for the tiers of government after shifting target dates two times this year.

This is even as the International Monetary Fund (IMF) yesterday disclosed that about 80 per cent of petroleum products consumed in Benin Republic was being smuggled from Nigeria and also cautioned the county against expansionary fiscal policies in view of the growing uncertainty in the global economic environment, despite the current impressive performance of the economy in GDP terms.

RMAFC chairman Engr. Elias Mbam, who disclosed this in his office in Abuja, said he could not say with certainty when the formula would be finalised in view of the socio-economic and political variables that would determine the conclusion of the project, citing paucity of funds as one of the major constraints hampering progress on the revenue sharing formula.

In the sharing formula currently, the federal government gets 56.68 per cent, states get 26.72 per cent while the local governments get 20.60 per cent.

The need for a new sharing formula came in the realisation that, since the 1992 revenue allocation formula, the nation is yet to have constitutionally backed sharing indices for the federal government, states and local governments.

Consequently, RMAFC was constitutionally mandated to fashion out a revenue formula in association with a special committee constituted by the House of Representatives on August 23, 2006, which would engage the critical stakeholders across the country to enable them come to a consensus formula for adoption.

According to Mbam, the commission needs a lot of funds to complete the assignment, adding that "there is need for adequate funding in order to enable the commission complete this national assignment. We are hoping that the 2013 budget will take care of this".

"The revenue formula exercise is a big one requiring extensive travelling and verification of socio-economic indices and other critical information in various states. Funding is required to travel, arrangements of 37 members in all parts of the country, hire consultants and perform other sundry logistics required before the exercise can be completed. But I want to say that we are hoping that we can do all that in 2013," Mbam said.

Mbam, who spoke elaborately on efforts the commission had put into the exercise over the past, said it was no longer desirable for the RMAFC to set a new deadline for the release of the new formula, adding that "the success of the review of the new revenue formula depends on variables; one of such variables is funding."

The sharing formula used since the advent of democratic government in 1999 was the 1992 recommendation bequeathed to it by the military which had the following features: FG 48.5 per cent, state 24 per cent, LGCs 20 per cent and Special Fund 7.5 per cent (which was distributed: FCT 1 per cent, ecology 2 per cent, stabilisation 1.5 per cent and natural resources 3 per cent).

The first proposal in the regime of President Olusegun Obasanjo, which was submitted to the National Assembly from RMAFC, had this proposal: FG 41.3 per cent, states 31 per cent, LGs 16 per cent and Special Funds 11.7 per cent (i.e. FCT 1.2 per cent, ecology 1 per cent, natural resources 1 per cent, agriculture and solid mineral development 1.5 per cent and basic education 7 per cent).

Before the National Assembly could debate on that proposal, there was a Supreme Court verdict in April 2002 on the Resources Control Suit which nullified provision of Special Funds in any given revenue allocation formula.

With that new development, the formula in operation then (from 1992), had to give way as President Olusegun Obasanjo invoked an Executive Order in May 2002 to redistribute the formula to reflect the verdict. That Executive order, which is acceptable by law, gave FG 56 per cent, states 24 per cent and LGCs 20 per cent.

But when there was an outcry from other tiers against that distribution, the president reviewed the Executive Order in July 2002 with some adjustments by fraction where the FG had 54.68 per cent, states 24.72 per cent and LGCs 20.60 per cent.

In March 2004, the then minister of finance, Dr. Okonjo-Iweala, issued a letter modifying the second Executive Order that increases state allocation to 26.72 per cent and reduces FG's to 52.68 per cent. That ministerial circular on the modification has since been the index for the monthly distributions from the Federation Account.

Between those periods, the RMAFC resubmitted another proposal on revenue formula where it proposed: FG 46.63 per cent, states 33 per cent and LGCs 20.37 per cent. But for a very mysterious reason, there was an allegation of circulation of fake bills in the National Assembly.

Mbam, however, said that after it completed the sensitisation programme across the country, memoranda had been received from the critical stakeholders, the next step being to engage in consultations in all the local government areas of the country for more inputs, but this has been stalled by lack of funds.

He expressed the hope that if the budgetary allocation to the commission in the 2013 fiscal year was good enough, it would enable its continuation of the field exercises to the geopolitical zones where workshops would be held and stakeholders' inputs considered before the finalisation of the fiscal exercise.

80% fuel in Benin Republic is smuggled from Nigeria - IMF

Meanwhile, the International Monetary Fund (IMF) yesterday disclosed that about 80 per cent of petroleum products consumed in Benin Republic was being smuggled from Nigeria.

The world body also cautioned Nigeria against expansionary fiscal policies in view of the growing uncertainty in the global economic environment, despite the current impressive performance of the economy in GDP terms.

Giving the warning while presenting the World Economic Outlook in Abuja, senior resident representative of the Fund in Nigeria Mr. Scott Rogers said that smuggling, which has been on for over two decades, has continued to boom due to the high incentive of high profit on the sale of the commodity in that country and other neighbouring countries because Nigeria's petrol price is the lowest in the region.

He attributed the non-competitive pricing of petroleum products between the country and neighbouring countries in the West African sub-region to the fuel subsidy regime which Nigeria has been sustaining to her national disadvantage.

The IMF boss said: "80 per cent of PMS consumed in Benin is from Nigeria. Nigeria's oil price is the lowest in the region. This has been going on for many years and not a new phenomenon. It will continue.

"As long as your prices are far below prices in other countries around you, you will always have products smuggling. Wouldn't you like to have efficient refineries? Wouldn't you like to see the queues go away and the funds spent on petroleum subsidy to be redeployed to other critical sectors? Wouldn't you like to have better-funded educational sector? Wouldn't you like a better health sector? Better transport system?" Rogers queried.

While noting that from an analysis of Nigeria's oil reserves in comparison with her over 160 million population, the nation's wealth is not as much as some people think, he said Nigerians have to make a choice and decide for themselves on the challenge of producing for other economies to enjoy at a great risk to their socio-economic wellbeing.

He urged the country to take advantage of the current growth to strengthen her fiscal position by saving for the future through appropriate polices, as there is no assurance of early global economic recovery.

Rogers said: "The global economic outlook remains uncertain. The global context has continued to witness slowing growth mostly marked in the advanced economies. The US housing prices remain depressed and that nation's weak economy is impacting negatively on many other countries of the world because the US is an export destination of many countries of the world. The US economy is recovering but the recovery is still weak.

"If the world economy remains weak, it will continue to affect countries of the world especially those with strong ties with the US and the Euro area which could actually go into recession. Export growth in sub-Saharan Africa has remained weak due to the weakening economies of the advanced countries," he added.

The IMF chief projected that the situation could be worse if, by January, American president Barack Obama, fails to reach a deal with the Congress to raise the deficit ceiling, adding that "that will mean raise in tax rates and cut in government expenditure across board which could further weaken the growth or even throw the economy into recession".

According to him, the Nigerian economy stands the risk of being faced with lower crude oil prices due to weak global economy.

In view of this likely negative oil price trend, he said, a high oil price benchmark for the 2013 budget as being proposed by the National Assembly could hurt the economy.

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