Leadership (Abuja)

15 January 2013

Nigeria: States, LGAs Lose Trillions to FG in Skewed Budgeting

The 36 state governments and the 774 local governments may have lost revenue running into several trillions of naira due to the faulty budgeting process in the country, statutory transfers made to federal agencies before revenues are shared among the three tiers, and non-remittance of funds from some of the agencies.

The states and LGs who may have lost close to N5 trillion over the past decade also end up paying for debts incurred by the federal government and its budget deficits due to the non-remittance of revenue by agencies under it.

According to section 80 - 81 of the 1999 Constitution, all revenue should be paid into the federation account, less statutory transfers, which is money meant for constitutional agencies and commissions of the federal government before the balance is now shared by the states, local governments and federal government.

This situation, analysts believe, has given rise to incomplete accounting, incomplete tracking and a budgetary system that is skewed against the states; it is to the disadvantage of the states.

A typical example as indicated by the Federation Account revenue for 2011 showed that out of the sum of N6.2 trillion which accrued to the Federation Account in 2011, the sum of N623.5 billion, N182.5 billion and N267.1 billion were transferred to the VAT Pool Account, the FG Independent Revenue, and other transfers respectively, thus leaving a net revenue of N5.1trillion, which was shared among the federal, states and local governments. All those statutory transfers are to federal agencies.

Data from the Debt Management Office (DMO) also indicate that the 36 state governments have a total external debt profile of US$2.2 billion (N347.6 billion) as at June 30, 2012, besides the domestic debt which could not be ascertained.

This debt overhang, analysts believe, would be greatly reduced if the federal government had been sharing the revenue to all tiers and then made statutory transfers from its own portion.

Commenting, the executive chairman, Society for Analytical Economics of Nigeria, Dr Godwin Owoh, said: "There is a major problem with the budgetary process at the federal level. There is incomplete accounting and incomplete tracking and the budgetary system is skewed against the states; it is to the disadvantage of the states."

Owoh noted that unless the budgetary process was altered, state governments would continue to be short-changed by the federal government and they would continue to experience rising debt profile.

He also noted that the budgetary deficit currently declared is not complete because it is just the federal government's own component of the deficit. Owoh stated: "When you are talking about the national deficit of this whole economy, it has to involve the deficits of the local governments, 36 states and FCT as well as that of the federal government. So what is currently being referred to as the national budget deficit is wrong. There is an understatement of the national deficit.

"Now, by the time the federal government gets all its own revenue, it now goes for appropriation; it is at that point that it creates a deficit, where the expenditure would be higher than total income. So the deficit we are referring to as national deficit is just the deficit of the federal government. The actual national deficit is unknown.

"By the time again you relate the deficit to all the statutory transfers, to agencies that all federal government agencies, you will now see that the federal government is not in deficit because all the agencies upon which statutory transfers are made are all federal agencies which it ought naturally to have been given appropriation.

"But the constitution has defined how they should get their money: that they should collect their money before it is shared. Incidentally, the entire money that is given to these agencies, by the time you knock it back into the federal government budget, that deficit will disappear. "

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