Poor Nigerian state finances portend political clashes

Subject

Nigerian state finances.

Significance

Nigeria’s 36 states and local governments are largely in poor fiscal shape, with many states struggling to meet basic recurrent liabilities. Significant debt burdens also continue to limit several states' ability to spend. However, states have limited funding options compared with the federal government: indirect financing via the Central Bank of Nigeria is mostly closed, and opportunities for tapping domestic and foreign debt markets are severely restricted.

Impacts

• Attempts to link bank accounts to tax identification numbers should help states clamp down on tax evasion.
• Amendments to the VAT rate and provisions for personal income taxes are likely to have varying effects on state revenue.
• A previous push by subnational leaders for national ‘restructuring’ is off the federal government’s agenda for the time being.
• Passage of the new Finance Bill is likely to be delayed, as states seek to determine the varying impacts on their revenues.