States oppose CBN’s 50% Cash Reserve Requirement on public sector funds
Monthly allocations to the three tiers of government from the Federation Account Allocation Committee (FAAC) would henceforth be augmented from the Stabilisation Fund until the end of the current economic crisis caused by the Coronavirus pandemic.
To address the emerging revenue shortfalls, the finance minister, Zainab Ahmed, said President Buhari approved the withdrawal of $150 million from the Stabilization Fund managed by the Nigeria Sovereign Investment Authority (NSIA) to support the June 2020 FAAC disbursement.
The Stabilization Fund is a special fund established by the Federal Government to conserve funds the government can draw from to cushion the impact of a serious economic crisis and national emergencies.
“The government is exploring other options to augment FAAC disbursements over the course of the 2020 fiscal year and the crisis,” the minister said.
Also, states have been granted moratorium on interest and capital payments on debts owed to the Federation until the monthly FAAC receipts improve.
These were part of palliatives unveiled by the Minister of Finance, Budget and National Planning, Zainab Ahmed, at the formal launch in Abuja on Monday of the N500 billion fiscal stimulus measures introduced in response to the COVID-19 pandemic.
The minister said President Muhammadu Buhari has already given her ministry approval to engage with the Central Bank of Nigeria (CBN) on moratorium for states on Federal Government and CBN-funded loans.
She said this arrangement would help to create fiscal space for the states, given the projected shortfalls in FAAC allocations in recent times.
Consequently, once monthly average FAAC revenue receipts fall below a specific threshold, interest and capital payments by states are to be suspended till monthly average FAAC receipts exceed the threshold.
“The details of this Moratorium will be expeditiously worked out with a view to submitting the final proposals for Mr. President’s guidance and final approvals,” the Minister announced.
“This intervention is vital to create fiscal space for the States, as they deal with the health and economic impact of the Coronavirus crisis. States will also be encouraged to explore similar arrangements for their outstanding debts to Commercial Banks,” she added.
Recent FAAC Stalemate
The FAAC meeting for February held a fortnight ago ended in a stalemate following the rejection of the amount presented for sharing by the revenue-generating agencies.
Members of the Committee, mainly Finance commissioners and Accountants-General of the 36 states, their Federal Government counterparts and the Federal Capital Territory, rejected the amount because it fell far below the agreed threshold.
In December 2018, a special FAAC Committee constituted to draw the guidelines on revenue transfer into and withdrawals from the accounts had recommended a minimum amount to be shared every month and the transfer to the excess crude oil account.
The committee’s recommended that whenever the net distributable revenues available for sharing falls below N680 billion, funds should be withdrawn from the excess crude oil account (ECA) to raise the revenue to at least N680 billion.
READ ALSO: Coronavirus: More troubles for Nigeria as oil price crashes below $20 — lowest in 18 years
On the other hand, where the net distributable revenue is between N680 billion and N730 billion, up to about N50 billion should be transferred into the ECA as saving.
If the net distributable revenue for the month is between N730 billion and N830 billion, up to about N100 billion should be transferred to the ECA, or a minimum of N150 billion, if the figure is above N830 billion.
However, with the impact of the coronavirus on oil exports, the amount presented for sharing by the Nigerian National Petroleum Corporation (NNPC) and other revenue agencies for sharing was far below the benchmark amount, hence the stalemate.
Impact of COVID-19
Based on the fiscal assumptions in the 2020 Appropriation Act, the Finance Minister said monthly FAAC disbursements to the three tiers of government were projected at about N888.5 billion.
Due to the significant drop in international crude oil prices, she said FAAC monthly disbursement in January declined to about N716.3 billion and N647.4 billion in February 2020.
For the Federal and State governments to meet their current obligations, the Minister said monthly average FAAC receipts should average about N650 billion.
However, Mrs Ahmed said projections based on current global economic reality was that monthly receipts may decline to below N400 billion over the next three to six months.