Local government sources of finance - SS2 Government Lesson Note

The local government in Nigeria has various sources of finance to fund their activities and provide basic services to their communities. These sources of finance include:

• ·         Statutory Allocation: This is the money allocated to the local government by the federal government from the Federation Account. The allocation is shared among the federal, state, and local governments based on a formula determined by the Revenue Mobilization Allocation and Fiscal Commission (RMAFC).
• ·         Internally Generated Revenue (IGR): This refers to the revenue generated by the local government from taxes, levies, fees, and other charges imposed on individuals, businesses, and other entities within the local government area.
• ·         Grants and Aid: Local governments also receive grants and aid from both the federal and state governments, as well as international donor agencies, to support specific projects and programs.
• ·         Borrowing: Local governments can also borrow money from financial institutions or issue bonds to finance their activities and development projects. However, borrowing must be approved by the state House of Assembly and the Debt Management Office (DMO).
• ·         Donations and Contributions: Local governments also receive donations and contributions from individuals, non-governmental organizations, and corporate bodies to support their activities and projects.

In reality, the local government in Nigeria relies heavily on statutory allocation and IGR for their revenue, with grants and aid, borrowing, and donations and contributions serving as supplementary sources of finance. However, there are challenges with the management and utilization of these funds, including issues related to corruption, inadequate financial resources, and poor financial management practices.