September 20, 2024/CSL Research

At the August FAAC meeting, a total of ₦1.2 trillion was distributed among the Federal Government (₦374.9bn), States (₦422.9bn), and Local Government Councils (₦306.5bn). Additionally, oil-producing states received ₦99.5bn as derivation fund (13% of mineral revenue).

This total represents an 11.4% decrease from the previous month’s allocation of ₦1.36 trillion. The distributed sum included ₦186.64bn in statutory revenue, ₦533.9bn from Value Added Tax (VAT), ₦15bn from the Electronic Money Transfer Levy (EMTL), and ₦468.3bn from exchange rate gains. The balance in the Excess Crude Account (ECA) stood at US$473,745.

Crude oil sales, which are the primary source of funds for the statutory account, remain the largest contributor to FAAC allocations. Despite a relatively stable crude oil price averaging around US$88.6 per barrel over the past 32 months, crude oil production has suffered significant setbacks due to widespread theft, frequent shutdowns at various terminals, vandalism, and poor maintenance. These challenges have severely impacted output. Recently, the global price of crude oil has dropped further, averaging US$72.8 per barrel in September 2024. Any continued decline in oil prices poses a considerable risk to the Federal Government of Nigeria’s (FGN) revenue and consequently to FAAC allocation, as the current budget is based on an oil price benchmark of US$77.97 per barrel.

Monthly FAAC disbursements have averaged around ₦1.11 trillion since June of last year. Each tier of government is expected to maximize the impact of these funds. Following the recent Supreme Court ruling in favour of local government autonomy, 20.6% of FAAC allocations will now be paid directly into the accounts of all 774 local governments, aiming to boost grassroots development.

At the state level, as of 2022, most states—excluding Lagos, Ogun, and the FCT—are heavily reliant on FAAC allocations, with over 60% of their revenue coming from this source. This dependency means that any significant reduction in FAAC disbursements would severely impact
the ability of these states to finance both recurrent and capital projects, especially given the increased financial burden from the recent rise in the minimum wage.

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