‘Bailout funds’ as albatross of states

Barely three months after the inauguration of President Muhammadu Buhari, the Federal Government unveiled a script to convert commercial debts of 22 states to bonds.

It was in effort to reduce burgeoning monthly bills arising from their respective debt profiles amid declining federal allocations that had rendered them insolvent.

With the assent of the National Economic Council, through the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance a comprehensive bailout package of N1.2 trillion was granted the states.

The fund was a mix of the Excess Crude Account, proceeds from the Liquefied Natural Gas operations, CBN special intervention fund and a debt relief package for highly indebted states at reduced service costs. In fact the bond was priced at 14.83 per cent, much lower than commercial loan rates.

Not long, CBN, in the statement, said it is collaborating with relevant stakeholders to consider ways of liquidating the outstanding staff salaries owed by states and local governments.

“The Central Bank of Nigeria has approved the request by the Deposit Money Banks to provide financial accommodation to state governments to enable them to pay the backlog of salaries of their workers.”

But this time, the rates and loan conditions will be different, but accommodating.

“The conditions for accessing the loan facility include resolutions of the State Executive Council authorising the borrowing and state House of Assembly consenting to the loan package, as well as issuance of Irrevocable Standing Payment Order to ensure timely repayment,” the statement noted.

The requirements were seemingly difficult for some states, because after few weeks that 27 states indicated interest, two states- Zamfara and Kwara, turned up and got their disbursement, but others were foot-dragging.

In all, 23 states received the bailout fund.

But the Ministry of Finance told The Guardian that the latest effort to help states is called “Budget Support” under the Fiscal Sustainability Plan (FSP).

According to a source from the ministry, the new budget support facility was offered to all states, 35 of which have elected to participate in the programme.

Abia State governor, Dr. Okezie Ikpeazu

“The budget support is a 12-month loan facility. A monthly amount of N50 billion is available in the first three months and N40 billion is available for the remaining nine months,” the source said.

Going by this, the Federal Government would have committed fresh N510 billion by the end of one year in this programme that may have started two months ago.

But the new initiative is anchored on 23-point reform agenda, which states are expected to fully implement to attain the envisaged fiscal objectives and benefit from the largesse.

“The outcome will be two-fold- immediate financial relief for state governments during the current challenging economic situation to enable them meet their core financial obligations.

“Improved fiscal performance in line with the five strategic objectives of the FSP, which include accountability and transparency; increase in public revenue; rationalisation of public expenditure; public financial management reforms; and sustainable debt management,” the source added.

The burden on the states’ economies is not the debt, but the utilisation. Of course, public finance management challenges are not peculiar to the Federal Government. Some of these states have been on long term debt over the years, others accumulated theirs on resumption of office of the new administration.

Since May 29, 2015, some governors have been in court to defend their electoral mandates.

Others have been weighed down by self-induced cost of administration through recruitment of retinue of aides. Besides, the federal allocations have reached a record low since this year.

The Independent Corrupt Practices and related offenses Commission (ICPC) once alleged that most of the states that claimed to owe workers’ salaries lied, while others failed to pay workers and diverted it to other use.
Findings showed that nearly all the states that got the fund did not only fail to clear the wage bills, but went ahead to accumulate more.

This shows the inadequacy and un-sustainability of the programme.

Fore example, Abia State government is one of the states with backlog of unpaid salaries. A staff of the state’s polytechnic in the commercial city of Aba, told The Guardian that they are owed since February till date.

Another civil servant in the state’s Ministry of Education said that the Primary and Secondary schools’ workers are paid at different months, with the former paid last in April, while the later has not been paid since March.

At the peak of Nigeria’s low revenue earnings, Osun State government got the lowest allocation among the 36 states of the federation, at N131.55 million, according to a report, which attributed the figures to the National Bureau of Statistics (NBS).

Though the figure represented a 2092.5 per cent increase when compared with a paltry sum of N6 million received in March Federation Accounts Allocations Committee meeting, it shows huge net deductions at source due to high debt obligations.

However, 15 states joined the list of least earning states in April, with a cumulative allocation of N20.19 billion, against six least states that got N8.79 billion in March.

The states are Osun, N131.55 million; Cross River, N967.49 million; Ogun, N999.69 million; Ekiti, N1.08 billion; Plateau, N1.11 billion; Gombe, N1.45 billion; and Zamfara, N1.47 billion.

Others are Imo, N1.63 billion; Kwara, N1.74 billion; Benue, N1.8 billion; Taraba, N1.89 billion; Abia, N1.93 billion; Ebonyi, N1.99 billion; Nasarawa, N1.99 billion; and Edo, N1.99 billion.

The common denominator in all these figures is low federal allocations and deductions for outstanding borrowings.

“The bailout made meaning at the initial point as a palliative measure to stabilize the states and give them the elbow room for re-engineering and restructuring of their finances and operations.

“However, it seems the states now want to be on perpetual bailout and life support without thinking through how to get out of the fiscal crisis. If states continue with this trend, the bailout will merely facilitate the postponement of the doomsday when everything will collapse,” a fiscal governance expert, Eze Onyekpere, told The Guardian

Prospects
Onyekpere said: “The evidence of doomsday is clear. Despite the bailout, some states like Imo are proposing to place workers on less than 100% of their normal entitlements, while proposing that they now work for three days in a week and use the other two days to engage in farming and other income-generating activities

so that at the end of the month, they will no longer complain if the state is unable to pay them.”
The reality of the 2016 budget’s failure is now becoming obvious, not only with the continuous fall in the price of crude and Saudi Arabia’s threat to cut price, but also the unending shut-in in production capacity. It is the only way to rejuvenate the states that have found nothing to do except to wait on calls for revenue sharing in Abuja.”

The Programme Officer, Public Expenditure Management at the Centre for Social Justice, Fidelis Onyejegbu, corroborated the fact that many of the states are heavily indebted and the bailout simply increases their indebtedness

“Again, borrowing to pay salaries, which is part of recurrent expenditure at a time when the state is not sure of how to pay back the debts is fiscal rascality.

“The Fiscal Responsibility Act forbids borrowing for recurrent expenditure and only permits same for capital expenditure and human capital development.

“If this trend continues, many of the states will become insolvent and unable to discharge any of their constitutional mandates.

“Capital projects will remain on the drawing boards, on the paper in which they were proposed.

“There must be innovative ways to fund the capital budget even if federal allocations virtually dry up, which depends on the resourcefulness of the governor and his economic management team.”

For Onyekpere, “opening up fiscal governance at the state level with increased transparency, accountability and popular participation is the way forward. The truth is that fiscal rascality still persists among states activities.

“Let the people know the inflows into the state coffers from the Federation Account, internally generated revenue and other sources and what it is to be used for.

“Then, the people can also be consulted in closing the funding gap that has arisen because of the crash in crude oil prices. The way forward is a fiscal state where people pay taxes in return for identified services rendered in the best value for money tradition,” he added.