FG, States Clash over Revenue Sharing

Written by This Day Saturday, 15 May 2010

The meeting of the Federation Account Allocation Committee which held yesterday ended inconclusively as finance commissioners of the 36 states of the federation and the finance ministry could not agree on the sharing of N736.985 billion arrears, which the states are insisting must be disbursed to them.

The N736 billion arrears is the augmentation for the shortfall in the actual 2010 budgetary allocation to the three tiers of government from January to March this year.
For the first time in the history of FAAC, no allocation was distributed among the three tiers of government which are the beneficiaries of the federation account as they also rejected the N450 billion statutory allocation due to them for the month of May.

But the Ministry of Finance  argued that it was not possible for the government to withdraw the contentious N736 billion arrears from the excess crude account (ECA) without the approval of President Goodluck Jonathan.

The states, which had met Thursday night and resolved to receive the whole N736 billion in addition to their N450 billion statutory allocation, refused blatantly to accept only the statutory allocations offered.
Consequently, the meeting had to be called off midway pending the meeting of the Finance Minister, Olusegun Aganga, with the presidency where the way forward will be charted.
Speaking on the development, Babalola said: “We have decided to suspend further consideration on the statutory allocation as well as arrears for the month.

“The rationale was that the commissioners’ forum met last night and decided that the arrears of about N736 billion that should be the differential between the actual receipts that was distributed in the last three months and the budget estimate should be paid along with the statutory allocation as well as the augmentation.

“However, for us to pay any money from the excess crude account we need the approval of Mr. President. There is no way at this point in time that we can actually pay over N700 billion from the excess crude account without the approval of Mr. President.”

Babalola who put the balance in the excess crude account at only $4.8 billion argued that, “we need to sit down and look at things because the fact is that the money we need to pay the federating units every month is half a trillion naira and what we are getting is less than that.

“On a monthly basis we need to augment that by about N100 billion and we would have to use the entire excess crude money and that is a problem.”
He continued: “We need to sit down with Mr. President and all the relevant stakeholders to look at the assumptions and the estimates of the 2010 budget, otherwise if we pay this entire money now, we may not have enough in the next one or two months.”

Given this scenario, Babalola said the FAAC meeting will remain suspended until the Minister of Finance meets with the presidency, with a view to finding the best way to resolve the problem. He said he expects the FAAC meeting to be reconvened next week.
Presenting the position of the states, the chairman, Finance Commissioners Forum and Commissioner of Finance for Taraba, Mr. Usman Rebo said: “One thing that you have to understand today is that we have an Appropriation Act.
“However, from January to April we have been sharing on the basis of $58 per barrel in the 2009 budget. When the Accountant General came out with the appropriation for sharing today, we found out that the arrears were not calculated into it.

“It is expected that we begin to implement the budget on the basis of 2010 estimates.
“We have an Act in place, so pay us our money from January to April. What they have given us is just April; they have not included January to March. What they have before us is not in line with the Appropriation Act.”

Babalola observed that the growth of discretionary spending by all tiers of government has outpaced the annual growth rate of the overall economy over the past 10 years, with deficits being the expected consequence.
“The production and price assumptions in the 2010 budget leave minimal headroom for adjustment and expose the economy to higher risks of exogenous shocks.

“It reduces the accretion to our honey pot of excess crude account which is already below the comfortable cushion.
“If we embark on any form of fiscal profligacy today it will certainly hinder our ability to address the various fiscal challenges we are likely to face in the near future,” he said.

He explained that current developments from nations like Portugal, Italy, Spain and Greece had shown that while it appears urgent to use massive public spending to stimulate an economy under stress, an economy wouldn’t be able to sustain long-term growth under the weight of significant fiscal burdens.
“At some point, what is considered a temporary economic prosthesis becomes a hindrance to the workings of the larger economy,” he added.

The minister, also at the FAAC meeting, presented details and breakdown of the revenue distribution from the federation account and the excess crude account in the first four months of 2010.
According to him, the total distributable revenue to all the tiers of government amounted to N1.495 trillion for the period January to March 2010.