March 28, 2024/FBNQuest Research

According to the most recent report on the federation’s revenue disbursement, the Federation Account Allocation Committee (FAAC) monthly allocations to the three tiers of the government amounted to NGN1.2trn (USD856.1bn) in March (from February revenue). The gross payout in February represents a slight increase of NGN4bn (or +0.03% m/m) over the preceding month’s payout. The monthly rise in revenue distribution was mainly due to higher exchange rate gain, which more than doubled m/m to NGN607.4bn.

• Given that Nigeria’s export of dollar-priced crude oil accounts for a sizable portion of the nation’s export trade, the fiscal purse has continued to benefit from the conversion of dollar-based revenue because of the relative weakness of the Naira.
• To put into context, the local currency depreciated by -9% m/m on the Nigerian Autonomous Foreign Exchange Market (NAFEM) in February.
• The February higher disbursement relative to the previous month was also supported by an increase of +9% m/m in revenue earned from value-added-tax to NGN429bn.
• Conversely, statutory revenue, which accounted for about 9% of the distributed sum, decreased markedly by -78% m/m to NGN101bn.
• Similar to the previous month, the communiqué noted improved revenue collections from petroleum profit tax, oil and gas royalties and import duty.
• According to FAAC, the federal government received NGN352bn, about NGN55bn or -13% m/m lower than the previous month.
• Similarly, disbursements to the 36 states (ex-the 13% derivation fund) and local governments fell by NGN12bn and NGN11bn to NGN367bn and NGN267bn, respectively.
• However, revenue allocations to oil-producing states, also known as the 13% derivation fund, expanded during the month, almost doubling m/m to NGN166bn.
• Although the Naira’s appreciation on both the official and parallel market over the past week is not enough to make a firm conclusion on the stability of the local currency, it appears that the recent FX reforms and timely interventions by the CBN in addressing the FX-supply deficit are starting to pay off.

That said, if the improved FX liquidity is sustained, a stronger Naira in subsequent months may result in a lower revenue distribution to the constituent governments.