IGR: Nigerian states’ capacity limited –Fitch

Nigeria’s dependence on oil revenue, which represents about two-thirds of Federation Account Allocation Committee (FAAC) transfers for states and local governments, constrains the ability of state to mobilise Internally Generated Revenue (IGR) and to tap liquidity sources on the market, Fitch Ratings has said. The agency, which stated this in its report: “Nigerian States – Framework,” obtained by New Telegraph yesterday, noted that states’ dependence on FAAC transfers became evident in 2020 during the COVID-19 “when the Federal Government of Nigeria compensated for the drop of oil-related revenue with a $150 million withdrawal from the Stabilsation Fund to avoid a severe decrease of the FAAC allocation to states.”

According to the report, “Fitch Ratings views the institutional framework for Nigeria’s local and regional government (LRG) sector as evolving due to limited own-revenue-generation capacity and developing debt and liquiditymanagement regulations and practices amid the devolution of a wide set of responsibilities to states.

“Most Nigerian states’ main revenue comes from the monthly transfers, which consists of oilrelated revenue and VAT, made by the Federation Account Allocation Committee (FAAC). Transfers represent a material share of the states’ revenue and their ability to mobilise internally generated revenue (IGR) and to tap liquidity sources on the market is generally limited.” The report further stated: “The Federal Government of Nigeria’s (FGN) dependence on oil revenue, which represents about two-thirds of FAAC transfers for LRGs, constrains the states’ ability to implement countercyclical policies and to fully display sovereign-like features as they continue to be tied to FAAC revenue to fund basic services.”




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