The much anticipated N804.7 billion lifeline for states by the federal government has become a subject of controversy with many arguing that the disbursement of the funds has been skewed in favour of some states to the detriment of others. Ibrahim Apekhade Yusuf examines the economics of the bailout funds
THE parlous state of the economy occasioned by dwindling oil receipts made bailout inevitable. Little wonder the federal government had in early July approved the sum of N804.7 billion as lifeline for states, to enable them pay their workers several months of arrears of salaries.
Subsequently, President Muhammadu Buhari had okayed a three-pronged relief package, including sharing of fresh allocations, granting of soft loans and restructuring of states’ debt-servicing payments.
To achieve that, the CBN had provided a soft landing for the states to repay the loans in 20 years just like the restructured commercial debts the Debt Management Office (DMO) converted to local bonds to help the states reduce their debt-service outflow and free resources for meeting other obligations, particularly, clearance of arrears of salaries and pensions.
The release followed the restructuring of their debts into bonds by the Debt Management Office at an interest rate of 14.83 per cent of the value.
The Director-General, DMO, Dr. Abraham Nwankwo, had said in Abuja that the 14.83 per cent would be paid by the 11 states whose debts had already been restructured in the first phase of the exercise.
The restructuring, he said, had been effected, noting that with the arrangement, the bond already issued would mature on July 18, 2034.
The first 11 states that got their debts to commercial banks restructured are Osun, N88.6bn; Delta, N69.8bn; Ogun, N55.4bn; Imo, N37.1bn; Ekiti, N18.8bn; Kwara, N15.6bn; and Edo, N11.9bn.
Others are Benue, N10.9bn; Oyo, N9.1bn; Bauchi, N6.5bn and Kogi, N0.81bn.
Expectedly, a number of states, The Nation gathered, had received the much promised bailout by the CBN.
The Nation gathered that the CBN has since made disbursements to Ebonyi, Osun and Niger states even as documentation from other states are being expected at the CBN before the release of their bailout.
A highly placed source, who confided in The Nation who kept the figures released to the states under wraps, however said the bailouts are tailored to the individual needs and the final agreement reached between the states and their banks.
According to the source, the remaining states have not finished with the conditions which include getting the consent of the states executive councils to agree to the bailout and their various legislatures ratifying the decision of the executive to access the bailout.”
Pressed further, the CBN source said each state government is to negotiate an agreeable interest rate with their banks.
Alleged exclusion from bailout
It is however instructive top note that a number of states claimed they may have been sidelined in the disbursement of the bailout funds.
Firing the first salvo, the Rivers State Governor, Chief Nyesom Ezenwo Wike, said the state did not get any bail-out funds, from the President Muhammadu Buhari-led federal government.
Wike made the claim in Port Harcourt, at the ‘People’s Forum’ held at the Obi Wali International Conference Centre, as part of the activities to mark his first 100 days in office.
“For record purposes, I wish to tell this Forum that Rivers State did not get bailout funds from the federal government. It is important to let you know the facts, before people start saying a different thing.”
His counterpart in Ondo, Governor Olusegun Mimiko said the state also hasn’t been able to access the funds.
The state Commissioner for Finance, Chief Yele Ogundipe who made this disclosure while speaking with journalists in Akure, the state capital, said the government was yet to access the said fund, adding, however, that process leading to the bailout fund is ongoing.
He further explained that the Federal Government had earlier directed that states can only access the fund through commercial banks and Ondo State just got an offer letter from a commercial bank on the 3rd of this month.
The commissioner said, “We are currently processing the payment and what the Federal Government has done is to instruct the state to access the funds through the commercial banks.
“We have approved one of the commercial banks like most other states have done and they just gave us an offer letter on Thursday, 3rd of September.
“Of course, we immediately prepared memo for the state executive council’s approval which came on Monday that we should access the loan at the rate specified by the Central Bank which is a single digit rate of 9 per cent”
Ogundipe stated further that government is hopeful that “within the next one week, the N14b will be received,” adding that it is still collating all its papers to be forwarded to the Central bank.
He, however, promised that workers in the state would be paid a month’s salary before the end of this week while the remaining two months arrears would be paid as soon as the bailout fund is accessed.
States delaying bailout
The apex bank has however said states yet to receive their shares of the bailout for the payment of workers’ outstanding salaries are responsible for the delay.
The CBN said it would approve the release of the funds within 24 hours to any state that had fully complied with all necessary conditions for the loan.
It, however, said some of the cash-strapped state governments would be able to access the funds before the end of this week.
The Director, Corporations, CBN, Mr. Ibrahim Mu’azu, confirmed the development to one of our correspondents in a telephone interview.
Mu’azu said, “Actually, the delay has been on the part of the state governments. As soon as they meet the requirements for accessing the loans, the CBN will give approval within 24 hours and they will be able to get the money.
“More states will be able to access this week; a few of them will meet the requirement and get the CBN approval to access the fund this week.”
Mu’azu said the state governments were aware of the basic requirements for accessing the loan.
According to him, a majority of the states are currently working to meet the requirements, adding that as they do so, they will get the central bank’s approval immediately and gain access to the bailout.
Mu’azu had last week said that the approval for the bailout was based on the CBN’s decision to collaborate with relevant stakeholders to consider ways of liquidating the outstanding staff salaries owed by state and local governments.
Corroborating Mu’azu, a source at the CBN who asked not to be named because he is not authorised to speak on behalf of the apex bank lamented that “some state governors were complaining that the CBN has not given them a kobo when they have not complied with the conditions. The day meet up with the conditions is the day they will get their bailouts” he said.
He urged such state governors not to complain and politicise the bailout exercise but endeavour to meet the conditions.
The conditions for accessing the loan facility from respective banks the CBN said “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 (ISPO) to ensure timely repayment.
By issuing the Irrevocable Standing Payment Order (ISPO), “it is clear that the facility is not free, the states’ financial exposures to the banks becomes first line charges that will be deducted from their monthly allocation from the federation account as a result of the ISPO.”
The CBN official explained that the reason there was specific figure attached to the facilities to be disbursed to the state governments is because “every state is to come up with its specific needs in order to access the facility from the commercial banks. They’re (states) working out what they need from the banks according to the conditions they reached with the banks.”
The funds were disbursed to the states that had complied with the requirements as agreed with their respective banks.
Template for repayment
A breakdown of the loans repayable at an interest rate of nine per cent over 20 years is as follows: Abia- N14.152b; Adamawa- N2.378b; Bauchi- N8.60b; Bayelsa – N1.285b; Benue – N28.013b; Borno – N7.680b; Cross River – N7.856b; Delta – N10.036b; Ebonyi – N4.063b; Edo – N3.167b; Ekiti – N9.604b; Enugu – 4.207b; Gombe – N16.459b; Imo – N26.806b; Katsina – N3.304b; Kebbi – N0.690b; Kogi – N50.842b; Kwara – N4.320b; Nasarawa – N8.317b; Niger – N4.306b; Ogun – N20.00b; Ondo – N14.686b; Osun – N34.988b; Oyo – N26.606b; Plateau – N5.357b; Sokoto – N10.093b and Zamfara – N10.020b.
Divergent views on bailout funds
Meanwhile, financial and economic pundits who have ventilated their views on what to expect from the release of funds to states raised different posers.
An economic analyst and Head of Portfolio Management at Meristem Wealth Management Limited, Mr. Taiwo Yusuf, reacting to the development, said a huge chunk of the N338bn would be used to pay salaries, which falls under recurrent expenditure.
He noted that the N338bn would go into the economy without any major stimulation in economic activities because the multiplier effect of the payment of salaries might not lead to a significant revamp in economic activities.
Mr. Chinedu Nwankwo, an economist and Chief Executive Officer, Investments Upgrades is also on the same page with Yusuf.
According to him, the N338bn might increase the purchasing power of the affected workers and lead to increase in consumption, but it might not necessarily lead to any increase in production activities soon.
But the Head, Research and Investment, Afrinvest West Africa Limited, a research and investment advisory firm, Mr. Ayodeji Ebo, said the payment of the N338bn to workers would lead to an increase in economic activities and the purchasing power of the workers as well as the production of more consumer goods.
According to an Abuja-based development analyst, Odilim Enwagbara, the disbursement of the fund to states is good for the economy because money meant for development of the economies of the states will now be available and fully utilised for that, adding that, no longer will such money be shared with the banks for outrageous debt service.
He pointed out that one of the benefits is that the states will henceforth have access to all allocations coming from the federation without having the banks to first deep their hands into the money before it gets to them. This, he said, means that states’ allocations will get to the states first and wholly. He said the development will ensure that money meant for the states will be spent purely on the development of the states, unlike the present situation where such funds are diverted on the pretense that it is being used to service bank loans.
When asked if the states had learnt their lessons, Enwegbara said, “Whether they have learned their lessons or not is immaterial. What is important here is that state governors will no longer go on a borrowing spree; money they borrow to divert into their personal accounts or placed in high interest-yielding fixed deposit accounts, which meant that salaries and projects the money is meant for are not met.”
