In the first half of 2023, state and local governments in Nigeria received a total of N2.59tn from the federation account, signaling a significant 27.62% surge compared to the N2.03tn shared during the same period in the previous year. This comes as a welcome development for the state and local administrations, who have been grappling with worsening economic hardship in their respective regions.
Data from the Federation Account Allocation Committee revealed that the total revenue shared among the three tiers of government also witnessed a considerable 13.12% increase, reaching N4.54tn from the N4.01tn available in the corresponding period of 2022.
The distribution of funds saw the 36 states of the federation receiving N1.49tn, while the 774 local government areas were allocated N1.09tn. A breakdown of the monthly distributions for states showed that they received N244.98bn in January, N236.46bn in February, N232.13bn in March, N218.31bn in April, N265.88bn in May, and N295.95bn in June. Similarly, local governments received N180.14bn in January, N173.94bn in February, N171.26bn in March, N160.60bn in April, N195.54bn in May, and N218.06bn in June.
Notably, some states, including Rivers, Akwa Ibom, Delta, Edo, Abia, Ondo, Imo, Bayelsa, and Lagos, received an additional N209.59bn from the 13% derivation fund.
Despite the positive trend in federal allocation to states, the World Bank issued a warning that the real value of this increase has been negatively affected by high inflation. In its Nigeria Development Update, the World Bank stated that although the nominal revenues for an average state increased by 16.1% between 2021 and 2022, this increment might not translate to real growth due to the soaring inflation rate.
The impact of record-high inflation and depreciation in their states has led to most states grappling with reduced revenue. The first quarter of 2023 saw about 25 states experiencing a revenue shortage, with their internally generated revenue dropping by 3.07% quarter-on-quarter. According to The PUNCH report, the 25 states earned N182.26bn in Q1 2023, representing a N5.77bn decline from the N188.03bn they generated in Q4 2022. This reveals the ongoing challenges faced by many states as they continue to rely heavily on the Federal Government’s allocations.
As Nigeria seeks to navigate through its current economic difficulties, state and local governments must focus on innovative strategies to improve revenue generation and minimize the impact of inflation and depreciation on their financial stability.