The allocation from the federation account to the three tiers of government would witness a massive decline of N2.01Tn going by the projections of the Federal Government. The amount is contained in the Medium Term Expenditure Framework and Fiscal Strategy Paper for 2020 to 2020.
The federation account, which is managed by the Federation Account Allocation Committee, is where all federally collected revenues are paid and shared to the three tiers of government. The federation account is currently being managed on a legal framework that allows funds to be shared under three major components – statutory allocation, Value Added Tax distribution; and allocation made under the derivation principle.
Under statutory allocation, the Federal Government gets 52.68 per cent of the revenue shared; states, 26.72 per cent; and local governments 20.60 per cent. The framework also provides that Value Added Tax revenue be shared thus: FG, 15 per cent; states, 50 per cent; and LGs, 35 per cent. Similarly, extra allocation is given to the nine oil, producing states based on the 13 per cent derivation principle.
An analysis of the MTEF showed that statutory allocation to the three tiers of government is expected to drop from N10.13Tn in 2019 to N7.67Tn, while VAT is expected to rise from N1.63Tn to N2.08Tn. A breakdown of statutory allocation showed that the Federal Government is expected to get N4.04Tn in 2020 as against N5.34Tn for 2019. For the state governments, the allocation to them was put at N2.05Tn for 2020 as against N2.7Tn while that of the 774 local governments area was put at N1.58Tn compared to N2.08Tn for 2019.
For VAT allocation, the Federal Government is expected to get N313.47Bn next year as against N245.72Bn this year; while states are expected to receive N1.04Tn as against N819.06Bn. For the 774 local governments, they are expected to earn N731.43Bn from VAT next year compared to the N573.34Bn for this year. The Minister of Finance, Budget and National Planning, Zainab Ahmed, had while unveiling the draft 2020-2022 MTEF and Fiscal Strategy Paper expressed concern that the country faces significant medium term fiscal challenges, particularly in the area of revenue generation.
She said that the 2020 budget would be predicated on a lower oil production of 2.18 million barrels per day and lower benchmark oil price of $55 per barrel. In the 2019 budget, the budget benchmark was based on 2.3mbpd oil production and $60 per barrel benchmark.