Hope rises for cash strapped states as distributive pool hits N700b 

By Abimbola Fashakin, Lagos

Hope rises for Nigerians as indications have emerged that the cash strapped three tiers of government in the country have be coming out of the financial woods as the Revenue Mobilisation Mobilisation Fiscal Allocation Commission is set to distribute about N700b.

The sense of optimism stems from projections by analysts working for a Lagos based firm, Financial Derivatives Company (FDC) Limited, which was presented to the Lagos Business School (LBS) by its Chief Executive Officer (CEO) Mr. Bismarck Rewane.

In the document, FDC stated that the devaluation of the naira, triggered by the commencement of the Central Bank of Nigeria’s (CBN) flexible exchange rate policy on June 20, has led to a rise in FAAC disbursements to the Federal, state and local governments.

It added that from a two year fixed exchange rate of N197 to the Dollar, the adoption of a flexible exchange rate on June 20, has weakened the naira exchange to N314 per dollar as at last Friday.

According to the FDC, as a result of increased exchange rate gains occasioned by the new forex policy, FAAC, “Reached highest level in 18 months- N559.03billion in July- from N305.12billion in Kemi AdeosunJune. Estimates for FAAC in August is N700bn, highest level in 30 months.”

The firm noted that the increase in FAAC disbursement will make it more convenient for the Federal Government to continue with its N90 billion bailout for the states.

However, while naira devaluation has pushed up FAAC disbursements to the three levels of government, FDC pointed out that it would also impact the economy negatively.

The research firm said, “Knock-on effect of forex policy seen in prices of imported items: lower agric commodities prices being eroded by naira depreciation, average decline in agric commodities was 6.83 per cent in July compared to naira depreciation of 8.55 per cent.”

It further predicted that headline inflation will increase to 16.8 per cent, “driven by supply shocks, spike in prices of refined products, forex scarcity and defensive buying.”

Analysts at First Security Discount House (FSDH) Group have also predicted that the depreciation of the naira will push July inflation to 17.35 per cent from 16.48 per cent recorded for the previous month.

The experts said, “We expect the July 2016 inflation rate (year-on-year) to increase to 17.35 per cent from 16.48 per cent recorded in the month of June, 2016. We expect the increase to come from the increase in the prices of food items and other non-food items as a result of the depreciation in the value of the naira.”

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