November 8, 2023/Coronation Research

The recently released data on internally generated revenue (IGR) by the NBS show that total IGR grew marginally by 1.6% y/y to N1.9trn for FY 2022 compared with N1.8trn recorded in FY 2021. The sluggish pace of y/y growth in total IGR can be partly attributed to y/y declines recorded in select states such as Plateau (-25.6%), Lagos (-13.6% y/y), and Kogi (-22.2% y/y).

In the period under review, 28 states including the FCT recorded growth in their respective IGRs. Based on channel checks, the cumulative IGR for sub-nationals (c. 1.9trn) for FY 2022 is 31% lower than the gross FAAC allocation to sub-nationals (c.N2.5trn).

Regionally, the South-West region recorded the highest IGR which stood at N908.2bn while the North East region recorded the lowest (N92bn). Despite the m/m decline in IGR, Lagos maintained the top spot in terms of IGR (N651bn) followed by Rivers (172bn), the FCT (N124bn), Ogun (N120bn), and Delta states (N85bn). This is reflective of the industrialized nature of these states compared with others.

Imo state recorded significant IGR growth on a y/y basis. Its IGR grew by 51% to N19bn from N12.7bn in FY 2021. This increase in IGR can be partly attributed to the improved security situation in the state during the period under review. Bauchi and Rivers states also recorded impressive y/y growth figures at 42% and 40% respectively. Meanwhile, Katsina (N13bn), Ebonyi (N12bn), Yobe (N10bn), and Kebbi (N9bn) recorded the lowest IGR in FY 2022.

A cursory glance at the IGR relative to the fiscal budget of select sub-nationals that performed comparatively well in 2022 as released by their respective Ministries of Budget and Planning, show that Lagos state IGR accounted for 36% of its fiscal budget in 2022, Rivers (36%), Ogun (34%), and Delta (18%) of its fiscal budget in 2022.

Despite improved FAAC payouts in recent months, it is imperative for sub-nationals to seek ways to boost internally generated revenue, as over-reliance on monthly FAAC disbursements is not tenable, given the persistent underperformance in the oil sector. Although most states continue to struggle with securing healthy IGR levels, the debt profile (both domestic and external) of sub-nationals continues to trend upward.

According to data from the DMO, the total debt profile for sub nationals for FY 2022 stood at N7.3trn compared with N6.4trn recorded in FY 2021. As at end- June ’23, the debt profile for these sub-nationals further increased to N9.2trn. We note that seven subnational bonds with a total outstanding
value of N379bn from Kogi and Lagos states are currently listed on the FMDQ exchange.

Their tenors range from 60-days to 10-years, while their yields range from 9% -17%. It is important for state governments to continue to drive revenue diversification efforts through well-thought-out incentives targeted at select sectors such as agriculture, manufacturing and trade, among others. This would strengthen the export potential of each state. Additionally, addressing structural deficiencies such as insecurity and infrastructure would attract increased investments which bode well for enhancing IGR levels.

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