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Nigeria’s 36 sub nationals or States will have more reason to smile in the coming months as the devaluation of the Naira should lead to an increase in FAAC revenue allocation for states from the Federation account.
“Another angle that many may not be seeing yet in this new FX liberalisation is that it potentially increases Federation Account Allocation Committee (FAAC) allocation to states by about 15% to 20%, as the dollar component of the government revenues settle into the federation account at the new official rate,” Abiola Rasaq, former Economist and Head, Investor Relations at United Bank for Africa Plc, told MoneyCentral.
“This should hopefully help some of the states to clear their salary arrears and free up some funds for the FGN for infrastructure spending, with hope that it should also slightly improve the debt service ratio of the government, as it creates a nominal boost to revenue numbers.”
The Central Bank of Nigeria (CBN) is now allowing banks to freely trade Foreign Exchange (FX) on the Investors and Exporters FX Window, by removing the previous cap, effectively devaluing the Naira.
The removal of the previous cap set by the CBN has enabled the naira find a market level against the dollar based on the forces of demand and supply, with the currency adjusting lower to around 663.04 naira per dollar in Friday’s trading, according to data from the FMDQ.
State coffers should also benefit from the earlier announced fuel subsidy removal, analysts say.
The Managing Director /CEO of Financial Derivatives Co Ltd (FDC), Bismarck Rewane notes that with the price of fuel trading at N511 per litre, up from N200, the FAAC allocation to the states should rise from N712 billion last month to about N1.2 trillion in the coming month.
He said with more resources being allocated to the states, the citizens should begin to see more social goods as they are making all of the sacrifices now.
“If the states go on with business as usual and do not deliver the benefits of subsidy removal, then the people will begin to kick back,” Rewane said.