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Business News of Wednesday, 18 November 2020

Source: Naira Metrics

FAAC allocated N2.05trn to the 3 tiers of govt in Q3 2020 - NEITI

The Federal Account Allocation Committee The Federal Account Allocation Committee

The Federal Account Allocation Committee (FAAC) has allocated a total sum of N2.054 trillion to the three tiers of government and other statutory recipients in the third quarter of 2020.

This is according to the latest edition of a quarterly review of the Nigeria Extractive Industries Transparency Initiative (NEITI)

Despite the accompanying harsh effects of the pandemic, the recent review revealed that this disbursement is the highest for year 2020, as it is the first time in this year that total disbursement will exceed N2 trillion for a quarter.

What you should know

A breakdown of the review showed that:

The allocations to Federal Government declined to N812.22 billion in Q3 2020, down by -11.7% Y-o-Y.The allocations to State Governments also declined to N676.5 billion, down by -6.6% Y-o-Y.Allocations to Local Government Areas declined to N429.16 billion, down by -9.6% Y-o-Y.Total disbursements increased to N2.054 trillion in 2020 Q3, indicating an increase of +6.2% from the last quarters (i.e. 2020 Q2) which stood at N1.934 trillion.However, when compared Year-on-Year, it is relatively lower than 2019 and 2018 figures by 9.6% and 9.8% respectively.Further analysis revealed that disbursements to the three tiers of government fell between the first and second quarters, and then increased between second and third quarters of 2020. For example, total disbursement to the Federal Government were N791.44 billion, N739.2 billion, and N812.22 billion for first, second, and third quarters of 2020 respectively. This has been the trend since 2015. Why it matters

Given the impact of the global COVID-19 pandemic on demand for oil, oil prices, economic activities, and other sources of revenue; it is not out of place for a dip to be recorded in disbursement figures for 2020 Q3, especially when paired with corresponding quarters in 2019 and 2018.

Bottom Line

Following the variations recorded between quarters in 2020, especially the increase in disbursement recorded in the third quarter of 2020, two factors were highlighted as the major causes and they are:

Surge in oil demand: Increased demand for oil following the easing of the global economic shut-downs as a result of the COVID-19 pandemic positively impacted revenue which reflected in allocation for the period.

Exchange rate: The adjustment in the official exchange rate will necessarily lead to higher disbursement from FAAC as revenues are shared in Naira. Recall that the exchange rate was earlier adjusted in March 2020 from N305/$1 to N360/$1 and further adjusted from N360/$1 to N380/$1.

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