FAAC payment to states rise by 36%

DISBURSEMENTS to states from Federation Account Allocation
Committee (FAAC) rose 36 per cent this year to N8.52 trillion, a
report released at the weekend has shown.

The report from Financial Derivatives Company Limited, a
financial advisory and research firm, showed that FAAC allocation
released in December rose 3.13 per cent to N812.76 billion.

Annualised, the total disbursement to the states stood at 36 per
cent (N8.52 trillion) higher than last’s year’s N6.25 trillion, the
report said.

It said that despite higher government revenue, the purchasing
power of Nigerian consumers has been falling, leading to a slide in
headline inflation for most of 2018.

It said: “The biggest threat to macroeconomic stability is the
sharp fall (nine per cent) in the price of oil in December to
$53.54 per barrel. The increased liquidity due to a higher FAAC
disbursement is likely to put pressure on domestic commodity prices
over the Christmas break.”

The depreciation of the naira against the dollar, which closed
last week at N364/$ at the parallel market also meant that more
local currency will be shared among states, as against what obtains
at a period of stronger naira.

The report said the crude oil prices also lost 11 per cent in
the last one week, closing at $53.54 per barrel, and about 46 cents
below the budget benchmarks for 2019. Other fundamentals point
towards oil prices remaining below $60 per barrel due to increased
supply from top producers including Russia.

The external reserves stayed high at $43.13 billion at the close
of last week.

According to the Central Bank of Nigeria (CBN), the Nigeria’s
over-dependence on crude oil for foreign exchange revenue meant
that shocks in the oil market were transmitted entirely to the
economy via the forex markets as manufacturers and traders who
required forex to purchase their inputs as well as goods, were
faced with a depleting supply of foreign exchange in the
country.

It said the impact of this decline on our reserves was evident
in the rise in the value of the dollar relative to the naira; and a
rise in the Consumer Price Index (CPI) due to the increase in the
cost of imported inputs and goods.

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