A World Bank report on Nigeria Development Update has indicated that states in Nigeria stand risk of losing about N18.8 billion in oil and gas revenues this year.

The bank noted that this is due to the worsening revenue collection at the federation level which has increased budgetary pressures at the states level.

According to the report captioned ‘The Continuing Urgency of Business Unusual,’ World Bank noted that the falling allocation from the federation government is putting dangerous fiscal pressure on many states, thereby dragging them into precarious fiscal position.

The report also pointed out that the situation has caused an increase in debt servicing expenditures of states and therefore warned that many states may not be able to meet their expenditures this year.

Also, the global lending bank maintained that the expected higher Value Added Tax (VAT) collection or improvements in internally generated revenues would not make up for the decreasing allocation from the Federation Accounts Allocation Committee (FAAC) this year.

According to the report, when compared to 2021, there would be a 2.7 percent fall in FAAC allocation to states this year.

It added that the fall would force states into more borrowing and reduction of discretionary expenditure.
The report stated that “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.

“Stagnating net oil revenues will significantly affect the fiscal situation at the state level. State governments are projected to collectively receive 2.7 per cent fewer revenues than in 2021, as federal transfers are estimated to decline by 10 per cent 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 make up 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.”

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