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Tag: bailout

State finances after federal bailout

We must give thanks to President Muhammadu Buhari’s rescue package for all the states of the federation that could no longer discharge their financial obligation to their employees following the drastic reduction in federal allocations consequent upon the drop in earnings from crude oil sales. With the exception of a few states, most of the states of the federation were under stress and acute distress. I visited the secretariats of Oyo and Osun in Ibadan and Osogbo respectively when both states were on strike I was struck and saddened by what I saw. The two places were virtually lifeless and deserted presenting a scene that I had never experienced in Ibadan where I had practically lived all my life. The situation reminded me of glory departing from Israel as a result of sin and conquest by its enemies. Ibadan which has withstood enemy conquest since its foundation circa 1830 presented a sorry situation. Osogbo was also a sad reflection of what I saw in Ibadan. Yet these two state capitals had never witnessed the kind of stupendous development that governors Abiola Ajimobi and Rauf Aregbesola had accomplished since their creation. The road networks in Ibadan put to shame all previous governments in the state since independence. Aregbesola has definitely transformed Osogbo not only in terms of roads but by building modern and up-to-date mega-schools in the state as well as feeding school children once a day a phenomenon that states collecting jumbo federal allocations have not been able to replicate or match. You can blame this young man for too much optimism but certainly not for corruption or squander-mania

My prayer particularly for Aregbesola is that through internally generated revenue he will be able to finish all the projects he has embarked on especially the dualisation of Akoda to Gbongan which will lead to the emergence of a conurbation stretching from Osogbo through Ede, Ode-omu to Gbongan with common services for all the towns brought together and increase in the tax base and springing up of industries enjoying economy of scale because of the size of the new market. While still on Osun, I wonder why there has been so much negative focus on the state as if it were the only state lagging in payment of salaries. Perhaps this has something to do with the over-exposure of the governor or perhaps people have come to expect too much from him. Whatever the case may be, there has been all kinds of do-gooders demonstrating more enthusiasm than wisdom offering help and even food to the so-called starving population of Osun State!

It is of course true that the APC states in the South-West borrowed money for infrastructural development following hostile treatment by the PDP-controlled federal government. With the decline in the value of the naira, these states may in future be the better for the loans they took. If they had waited longer, the kind of work done with minimal allocations one sees in Ekiti under Fayemi, Osun under Aregbesola , Ogun under Amosun, Oyo under Ajimobi and the giant strides in Lagos under Fashola may never have been accomplished. It is only when one visits neighbouring states of Kogi and Kwara in the same cultural environment that one can appreciate what has been accomplished in these states.

All I have said is of course no excuse for poor planning and not saving money against lean times. But when faced with absolute and abject underdevelopment, does it really make sense to postpone responding to the development yearnings of our people? This is the question we should ask ourselves.

The answer lies in each state becoming self-sufficient and not depending on revenues accruing to the federal government that itself, unhealthily in economic sense, depends on hydrocarbon sale and taxes levied on multinationals involved in their production. We must as a people and a country move away from dependency on oil and gas. Our country is blessed by God. We are in the tropics where we can grow crops all the year round unlike in the temperate regions of the world where for half of the year, the land is too cold to support agriculture. With a population one ninth of that of India and vast arable land lying fallow, we should not be importing rice from India Thailand, the USA and Bangladesh of all places! We should not be importing vegetable oils from Malaysia and Indonesia or textile from anywhere when all our textile mills are mothed up and moribund due to lack of use. We should not be importing any kind of wines including champagne of which we are the largest consumer outside France. We should refrain from eating or using whatever our ingenuity cannot produce. The only concession I would make is industrial machineries, industrial inputs, transportation and electrical grid and maybe, chemicals and drugs. We should do away with our indulgent lifestyles of conspicuous consumption .This was the strategy the Chinese adopted that leapfrogged their economy from the laughable level it was a few years ago to the fastest growing economy in the world. This prescription is at the macro level of the nation.

But at state level, we must allow the people to own the government. The situation at present where only salary earners pay taxes is one of the reasons why the people do not care if state officials are corrupt or clean. The unearned income from oil and gas is a curse and this is why we suffer when their prices like a yoyo go up and down

We must bring back the regime of flat or poll tax on all adults. Jangali or cattle tax should be levied road tax should also be paid. The federal government should allow states to collect VAT and VAT which is actually luxury tax which need not fall on the poor should be increased to 20 percent . We should not wait until our economy goes the way of the Greek economy and international caretakers are called to impose unbearable conditionalities on us before we can access development assistance. States must also levy commodities tax on cash crops and recreate commodities boards that used to exist before the craze of market forces determining price of commodities. This will help stabilise prices paid to producers who will be protected from the vagaries of rise and fall in the world market. All the states of the federation should be asked to explore charging annual land use and development tax on home owners in such a way that the least able to pay are excluded. Transparency will be the watch word. If the people see what is being done with their taxes, they will respond positively to these changes. All this will be unpopular to begin with but it is the duty of government to explain to the people their responsibility. This is the meaning of representation based on taxation which is at the core of democratic governance. Dependence on oil and gas revenue will not last and the earlier we get used to paying for the services we need the better and the less painful it will be in the long run.

Finally, the federal and state governments should stop meddling in the financial affairs of their universities. There is no where in the world not even in the richest countries in the world where university education is free. Councils of universities should be allowed to draw up their budgets and spread the cost to users of their services so that they can operate maximally and efficiently. The present situation where salaries are not paid particularly in the state universities leads to poor graduates and inability of these tertiary institutions to contribute to the pool of knowledge and consequently to industrialization and wealth creation. A situation where school fees in universities are pegged at N25,000 or N50,000 a year is not just laughable but very sad and shows us as an unserious country. States that cannot fund one university as in the case of Ondo goes ahead for purpose of vainglory to establish three! And before you know it all other states will join in a race to establish funny institutions and call them universities.

If only we will be honest with ourselves and be less selfish and ego driven, I doubt if there is anybody in government in this benighted country who does not know that we are punching bellow our weight both nationally any internationally.

July 23, 2015
‘ Buhari didn’t breach constitution on bailout’

Nigeria Bar Association (NBA), Ikere Ekiti Branch Chairman Bunmi Olugbade has defended President Muhammadu Buhari for approving a financial bailout for states.

Olugbade, in a telephone chat with reporters in Ado-Ekiti yesterday, said Buhari did not breach the constitution as being alleged in some quarters in giving a financial lifeline to states, which were struggling to pay workers.

The NBA chief argued that the constitution empowered the president to act in emergency to meet the needs of Nigerians.

A member of the House of Representatives has gone to court to challenge Buhari’s financial bailout for states on the grounds that the action was unconstitutional.

Olugbade, a former member of Ekiti State House of Assembly, said Buhari was covered by Section 5(1) of the 1999 Constitution, which vested him with Executive powers to act in the interest of the nation.

But he acknowledged that Section 6 (6) of the 1999 Constitution allowed any Nigerian aggrieved with any government policy to to challenge such policy in court.

The lawyer said: “Section 5(1) of the 1999 Constitution stipulates that the Executive powers of the federation shall be vested in the President. And Buhari enjoys this privilege because Nigeria is a federating state and operates a presidential system.

“Under Section 13 of the 1999 Constitution, the government of the federation has statutory objectives to carry out state policies. Sections 16 and 17 even stated that the state shall protect the rights of the citizens.

“Section 16 ( 2 ) went further to say that the state shall direct its policy towards ensuring that its material resources are harnessed, managed and distributed for the good of the citizens.

“It is the social responsibility of government to ensure the provision of public assistance in deserving cases or other conditions of need.

“The combined effects of all these provisions lent credence to the fact that President Buhari has not breached the constitution. What he did was in the best interest of Nigeria and within the law.”

July 21, 2015
Beyond ‘bailout’ for states (1)
President Buhari and his advisers—economic and political—need to pay attention to the root-cause of the crisis that he has been able to solve patriotically within the first two months of his regime.

Quibbling about the proper definition of recent special grants to states to enable them meet their primary obligations to citizens in their employment is not as significant as coming to terms with how to move away from the political philosophy and federal governance model that made it irresistible in the first instance for states to run to the central government for special assistance. It is therefore unnecessary to join hair-splitting arguments about whether the special grant passed from President Buhari’s central government to the 36 states last week falls, in the fashion of strict constructionism, into the category of bailout.

This is the first time that so many states were unable to pay workers’ salaries for months. Not being a common occurrence suggests that most of the states must have been under unexpected revenue pressure. It should not matter if the immediate cause of the failure of states to meet their contractual obligations to workers is traceable to decline in the price of oil and resultant decline in allocations to states from the federation account. What matters most is that both the central and state governments had shortfalls in their revenue and thus had to take loans. The federal government would have been as guilty as the states if it was not for the central government’s bigger access to loans in relation to the access of states to loan facilities—domestic or foreign.

There are many matters that should arise from the patriotic response of the federal government on this matter. While acknowledging the speed of response of President Buhari to this crisis, it is important for citizens to start looking at remote causes of failure of states to pay their workers, simply because those buying the country’s major foreign exchange earner, petroleum, are compelled to respond to the dynamic of supply and demand. Just as the coming to power of President Buhari and a progressive party encourages us to ask for changes, so should the decline in revenue from petroleum urge us to look beyond rushing funds to states to avoid the worst crisis in modern polities and societies: workers’ revolt. It is instructive to bring into focus a Yoruba proverb that says the problem of a physically handicapped person to carry his luggage dexterously stems from his physique.

The problem of the states in the last months with respect to salary arrears and to diverting pension funds to pay salary of workers in service may not be all traceable to mismanagement by individual state governors. This is not to say that poor judgment may not be a part of the crisis. What appears to be the most important cause of the crisis is the character of the country’s political and economic management. President Buhari and his advisers—economic and political—need to pay attention to the root-cause of the crisis that he has been able to solve patriotically within the first two months of his regime. He needs to find out if he will always be in a position to give bailout to states if the culture of running a Manna Economy, such as has characterised governance in this country for decades continues. He also needs to ask himself if it is rational to grant whole scale bailout without ascertaining the impact of corruption on each state. More importantly, he needs to ask himself if all the assumptions that produced a system that was thrown into turbulence by a fall in oil price are right for managing a federal system that has over the years become a quasi-federal system that has been sustained by federal allocations.

One school of thought about how to prevent states from experiencing similar embarrassment again is to adopt the suggestion at the 2015 Jonathan National Dialogue that the central government take just 42% of revenue (as opposed to the current 52% the federal government takes) while states and local governments receive about 56%. This mindset is still beholden to the mistakes of the past. The real problem is the structural imbalance in the re-design of the federal system inherited at independence in 1960. Just as retired Colonel Kangiwa Umar said recently, the military dictatorships of the past made egregious mistakes in the balkanisation of the country into unviable mini-states.

Before 1966, each of the four regions had more powers of raising and spending revenues. A related question is why the federal government would need up to 42%. Should the federal government face fewer functions such as defence, foreign relations, currency, rather than saddling itself with all functions imaginable, it should not need more than 20% while the remaining 80% should go to states and local governments to carry out most of the functions on the concurrent list. But this is not the big problem; the big problem is that we need to move away from the model that encourages states to rely on allocations from the federation account.

Under the military regimes of Manna Economy, during which the dominant mantra was “money was not the problem of Nigeria but how to spend it,” it was discouraging for political managers to look ahead and imagine negative scenarios such as we have today, and towards a time that oil might not bring as much easy flow of foreign exchange into the country. Even President Buhari has acknowledged the inevitability of the Manna Economy by saying that states should look for more IGR to supplement allocations from the centre. What happens in all other federal systems is that states, provinces, lander, use transfers from the central to supplement what they generate on their own. In other words, states in other federations across the globe are positioned by size, population, and natural endowments to leverage on their huge potentials to self-finance. Our federal system has been starkly different from what obtains in Australia, Canada, Germany, Mexico, United States of America, and United Arab Emirate, to name a few federal examples.

The legacy left by military dictators to the civilians that took over from them is one in which even automobile (vehicle registration and drivers’ licence) taxes are taken away from states and put in the hands of some federal agency. All customs, excise, port charges, and consumption taxes are, under the current system fashioned by military rulers, collected into the central pool for sharing among federal, state, and local governments, a commitment to make subnational governments to accept the centre/periphery relations imposed by military re-design of the Nigerian state between 1966 and 1999 in particular. Even civilian rulers do not seem capable of thinking outside the box. If they were, no delegates at the last national dialogue would have mentioned creation of more states, let alone recommend moving the number of states from 36 to 55. Otherwise, it would have occurred to delegates that increasing the number of states to 55 and increasing allocations to states and local governments from 42 to 56 would not change the fortunes of subnational governments in any noticeable way.

Giving bailout to states at times of financial emergencies is about the small picture. The big picture is thinking about and planning towards changing states and local governments from centres of consumption to sites of production. At both the corporate and personal levels, the country has gotten inured to a political and economic system that encourages laziness and fear of self-exertion to produce values. Just about every level of government has come to see as given a system of sharing funds from rents, rather than one of sharing responsibilities. In the short-term, preventing states from going into bankruptcy is a good gesture by President Buhari, who workers in Yoruba states now refer to as Aboki (friend) because of his immediate intervention in the financial crisis of states.

The long-term solution to the problem at all levels of government having to borrow to even pay government workers may lie in new thinking that includes asking why a country of this size needs 36 states and 774 local governments. Such thinking should also ask if the obsession with unity is justifiable if states have to be guzzlers of funds from rent collection. Just as Colonel Umar also observed, President Buhari needs to start thinking about whether the present 36 state systems with 36 bureaucracies and legislatures are sustainable in the long-run, even after we start mining another set of non-renewable minerals.

There is no better time for the country to come to terms with mistakes of the past. No federal system can survive, let alone thrive, on the strength of handouts from one level of government to other levels.
- To be continued
July 19, 2015
Federal bailout of insolvent states

Last week, President Muhammadu Buhari handed the insolvent state governments a financial bailout of N713.7b. The financial package was reported as consisting of accruals from the LNG (N413.7b), a special CBN intervention fund of between N250b andN300b, and the rescheduling with federal assistance of the states’ outstanding bank loans.

In addition, the sum of $1.7b from the ECA was shared among the three tiers of government. But it was stated that this was not a part of the bailout package offered the insolvent states by the Federal Government. Some 24 or more state governments owing their workers salary arrears of seven months or more will share this federal largesse. This generous financial bailout is almost unprecedented in the annals of public finance in Nigeria. It should be regarded as exceptional. It would be wrong of the states to draw the conclusion from this bailout that such measures can be repeated in future. Even if this was possible, it negates the constitutional principle of federalism in which all states, including the federal, are coordinates. It reinforces the existing tendency of the states becoming increasingly dependent financially on the centre. This is bad for federalism.

The financial relief measures provided the insolvent states with an immediate lifeline and temporary relief. They were widely welcomed in informed financial circles all over the country as necessary and timely. The finances of the insolvent states had collapsed once the oil revenue started falling. Even the few relatively solvent states stood in danger of being dragged down by the insolvent states. The package will immediately help the insolvent states to meet their wage and other financial obligations to their workers. The finances of the Federal Government too were so bad that it too needed a bailout. Before leaving office in May, the previous PDP Federal Government had borrowed over N400 billion from the CBN to meet its immediate financial obligations to its workers. This is half of what it needs to borrow from the CBN in this fiscal year. In some cases federal workers and pensioners had not been paid for upwards of four months, leading President Buhari to complain bitterly that his new government met an empty treasury. Certainly, federal finances were just as bad as those of the insolvent state governments. Many vital federal projects have had to be put on hold as a result of the poor state of federal finances.

Now public finances in Nigeria have generally not been handled with the transparency, prudence and diligence that are needed to ensure financial stability in the country. At all levels, governments have spent public funds recklessly on unproductive ventures. All governments like to spend money, including unearned income. This is what accounts for Nigeria’s woeful record of financial recklessness and corruption. Its record of budget deficits is uninspiring. It is estimated that the debt stock of the state governments is now over N600 billion, while that of the Federal Government is in the trillions of naira. All these domestic as well as external debts, now increasing steadily, will have to be paid off someday.

Governments may need to borrow occasionally to executive projects that contribute to economic growth. But this is not the case at all in Nigeria. Very often the public sector borrows money for projects that it does not really intend to implement, or that contribute little or nothing to economic growth in the country. For instance, many of the insolvent states are building local air ports, hotels, stadia, and funding other similarly unproductive projects, such as the Tinapa tourist resort that are inherently wasteful. But the banks are only too willing to lend money to the financially imprudent states because they know that, no matter what happens, they will get their money back through federal guarantees and deductions at revenue source. They prefer lending to the state governments to lending to the private sector which is better placed to use borrowed funds more judiciously and create more jobs. Quite often, public sector borrowing crowds out the private sector from access to vital bank loans.

What is to be done to restore Nigerian public finances to stability? The solution is clear and has been well articulated for years by leading financial experts. First, budgetary deficits have to be drastically reduced to contain inflationary pressures and more public borrowing. The deficits can easily be reduced if identified leakages in revenue collection are plugged. What has been going on in the NNPC where a lot of revenues are not remitted to the Federal Government is simply scandalous and should be brought to an end. In fact, Nigeria will lose nothing financially by scrapping the NNPC totally. It has become a financial drain pipe that the country can no longer afford. Secondly, and in this context, it is time to end the so-called oil subsidy which has become the source of financial scam in the country. It is the oil importers and their agents in the NNPC who benefit from the subsidy, not the poor. The public is tired of the long queues at petrol stations for fuel. Where it is available it is being sold for over N150 per litre. So, where is the subsidy? We should no longer put up with the supply blackmail by the oil importers. Savings from the withdrawal of the oil subsidy can be better utilised by building more oil refineries. Thirdly, all the governments of the federation have to increase their internally generated revenue as Lagos State has succeeded in doing over the years. It is estimated that it generates internally about 70 per cent of its annual budget. Where it has borrowed, it has the capacity to repay the loan without much strain. Fourthly, the Federal Government should be more cautious in offering borrowing states bank guarantees. Such federal guarantees should only be extended to states that have a credible record of financial management, not those who continue to borrow recklessly.

In all these cases of financial profligacy, it is the people, particularly the poor, who suffer the consequences of this financial recklessness. Salaries are unpaid, families and children suffer and projects that are of direct benefit to the public in the health and education sectors are simply put on hold, as is the case now. Just as there is no free lunch, there are no free funds. All borrowed money has to be paid soon or later. And the burden of repayment is always on the poor. The poor people of Greece are now facing the excessive borrowing of their governments in the past. They now have to bite the financial bullet. Those who took the decision to borrow and spend such borrowed money recklessly hardly ever suffer any consequences, as they would have stashed enough money away to ensure their future comfort and that of their family. Already, several governors are being interrogated and prosecuted by the EFFC for the vast sums of money they have stashed away. It is still possible for them to be let off the hook for lack of diligent prosecution by the EFCC. But who will bailout the poor from this huge financial burden when it is pay back time?

July 16, 2015
Bailout of states unconstitutional

The government of President Muhammadu Buhari (PMB) could not have parcelled out,any so called bailout, to states, without appropriation; as some commentators represented the recent 413.7 billion naira, shared by the three tiers of government, to be. Indeed, any such conduct would be unconstitutional. So, the impression that the president, like a Father Christmas, could depending on his mood, dip hands into ournational resources, and extend largesse to states, is a throw-back to the old ways. But I doubt, if PMB wouldoffend the constitution, just to earn a few plaudits from Nigerians, knowing that the praises would dissipate,as soon as the states are back in their quagmire.In my view, what the states need, is expanded economic opportunities.

Perhaps, the realisation that a bailout, without a legislative backing,would be unconstitutional, may have prompted the presidential media men, to strenuously emphasise that the presidency never used the word, bailout; even when some wanted the impression created that the intervention, was borne out of presidential magnanimity. Well, maybe. But the point I seek to make here, is that under the 1999 constitution, the power and control over public funds, in this case, the income belonging to the federation, is as provided for,in sections 80, 81, 82 and 83 of the 1999 constitution. And in my humble view, a revenue accruing to the federation from NLNG, whether as a dividend or tax, falls within the purview of those sections of the constitution.

Interestingly, PMB had already emphasised that the era of unconstitutional handling of the resources of the federation, including the obnoxious withholding of national resources and extra-budgetary expenditure by federal ministries, parastatals and agencies, like the Nigerian National Petroleum Corporation (NNPC), belongs to the past, and must be discarded. So, how could PMB be encouraged, to engage in the same conduct that he had publicly decried. In taking a stand, the President had instructed all government agencies and departments, to pay in all money derived by them into the federation account, in accordance with section 80, and to desist from all the illegal deductions, which offends the constitution, in the name of costs.

That is the correct position of law; for section 80(1) provides: “all revenues or other moneys raised or received by the federation … shall be paid into and form one consolidated revenue fund of the federation”. Furthermore, the sub-section 2 provides: “no moneys shall be withdrawn from the consolidated revenue fund of the federation except to meet expenditure that is charged upon the fund by this constitution or where the issue of those moneys has been authorised by an appropriation act, supplementary appropriation act or an act passed in pursuance of section 81 of this constitution”.

Significantly, section 81(4) on its part, provides: “if in respect of any financial year it is found that – (a) the amount appropriated by the appropriation act for any purpose is insufficient; or (b) a need has arisen for expenditure for a purpose for which no amount has been appropriated by the act, a supplementary estimate showing the sums required shall be laid before each house of national assembly and the heads of any such expenditure shall be in a supplementary appropriation bill”.

To give the executive some latitude in times of emergencies, the national assembly under section 83(2) “may by law make provisions for the establishment of a contingencies fund for the federation and for authorising the president, if satisfied that there has arisen an urgent and unforeseen need for expenditure for which no other provision exists, to make advances from the fund to meet the need”. But as provided in sub-section 3 “where any advance is made in accordance with the provisions of this section, a supplementary estimate shall be presented and a supplementary appropriation bill shall be introduced as soon as possible for the purpose of replacing the amount so advanced”.

So, considering PMB’s avowed integrity, on the basis of which Nigerians gave him an overwhelming mandate, nearly four months ago, I am inclined to believe that the billions of naira, shared by the three tiers of government,was within the purview of the 2015 appropriation act, or an expenditure within the contemplation of the contingencies fund, of the federation. In helping the states out of their financial quagmire, what PMB must do,going forward, if he wishes to make a considerable difference within his four year tenure, is to encourage and foster greater economic activities within the states, and the six-geopolitical zones of the country.

While pushing for federalising the ownership of natural resources of the country, by tinkering with the exclusive legislative list of the constitution; PMB could without offending the laws as is, offer financial and joint-venture opportunities to states and zones willing to expand their economic horizon. Considering the existence of legal regimes for Public Private Partnerships, interested states could establish business enterprises, and partner with federal agencies,to engage in mining, electricity generation and distribution, railways, development of ports, aviation, construction of federal roads, and other viable business enterprises, on exclusive legislative list.

Interestingly, the business relationship canvassed here,could also borrow a leaf from the NLNG ownership model. There, private equities of international oil companies hold 51 percent stake, while NNPC holds 49 percent. Perhaps, it is such ownership structure that has imbued the company with the requisite discipline,to soar to great heights in the last 20 years, while NNPC that is nearly 40 years old, is still doddering. So,while enterprises representing the federal and state governments,mayhold 49 percent equity, and provide stability and security of business environment; private entrepreneurs will hold the balance 51 percent, and provide discipline and technical knowhow.

July 14, 2015
Another look at Buhari’s bailout
SIR: Last week, the Federal government announced the much anticipated relief package, aka “bail out,” to enable distressed states clear the backlog of salaries they are owing as well as encourage economic boom and productivity.

The package came in three measures: one, the allocation of N413.7 billion proceeds from NLNG among the three tiers of government; two, CBN Special Intervention Fund of N250 – 300 billion and three, the restructuring of commercial loans of N660 billion by Debt Management Office (DMO) with a view of increasing their tenure to 15 years so as to reduce debt service obligations of distressed states.

Although I had my initial thoughts on how we could encourage these distressed states to exit financial insolvency and become productive permanently, I must commend the foresight of President Muhammadu Buhari on this score. The president has shown a great quality of leadership which is responsive courage. No matter how we want to look at it, Nigeria exists to provide security and seek welfare for its people; so, in this era of army of distressed states, the Federal government is under obligation to explore ways of finding quick-fix solutions to this national issue and ensure peace and prosperity in the country.

However, Nigeria cannot elect to be a country that encourages laziness and spendthriftism; it must enthrone a model that encourages hard work and diligence in the management of public fund so that it can speedily attain economic development. Again, given what states receive monthly from the federation coffers as monthly allocation, there is absolutely no reason why Ebonyi pays its workers as at when due while Rivers and Osun are owing their own workers from four to 11 months. The only word to explain this massive wonder is mismanagement.

Luckily, all states in Nigeria are massively blessed by providence with material and human resources to excel and reach the sky; from Sokoto to Anambra and Osun, our soils are arable and harbour natural resources, we also have competent people to drive our economy if state governors had developed synergy with the federal government towards the development and encouragement of exploration of natural resources in their domains.

Strangely, nothing is being said of the people who made these states distressed through wanton mismanagement. Elsewhere it has been said that re-election and election campaigns are the reasons why some states are unable to pay their workers today. Some people were and/or the governors of these states. It is therefore pertinent that as the president extends relief package to the distressed states to clear this mess with the right hand, he should also extend EFCC, ICPC, etc to the people who brought these states on their knees. The president must use this time to show us how committed he is in fighting corruption and retrieving whatever that might have been stolen from the public till in the days of impunity. By and large, Nigeria can choose to strengthen its anti-corruption agencies now or be ready to be extending relief packages to distressed states perpetually. Moving forward, returning governors who put their states in this present economic mess must also be compelled to work under Federal government supervision in the use of this stimulus package and its eventual repayment schedule. The DMO, CBN and Federal Ministry of Finance should jointly ensure that this relief package impact positively on the economy and our people as such it would not be out of place for President Buhari to set up a supervisory committee to monitor the disbursement and use of this money if not some state governors would divert the money without paying their workers after all a beggar, they say, have no choice.

We must not create a tradition that would encourage state governors to continue to rape the treasury of their states or even go on borrowing spree that would be repaid by the next generation given the restructuring of loans by DMO. So, stringent guidelines must be set for accessing the CBN Special Bail-out Intervention Fund of N300 billion in order not to set a precedent for rewarding laziness and low productivity.
- Okafor C. Udoka
Ikeja, Lagos.
July 14, 2015
A bailout and its aftermath

In a three-pronged bailout that does not include a drawdown on Excess Crude Account (ECA), the Buhari presidency has approved the disbursement of targetted funds to states to help them overcome their crippling cash crunch. The funds are sourced from NLNG proceeds of almost N414bn, CBN-packaged soft loans of about N300bn, and restructured commercial loans totalling some N600bn organised by Debt Management Office (DMO). In all, over N700bn cash will be made available to the federal government and the states in a matter of weeks. The injection is expected to reflate the economy and ease political tension in the about 24 states enmeshed in the financial quagmire.

This is probably the most remarkable step taken by the Buhari presidency since its inauguration more than a month ago. Unlike the sanctimonious Goodluck Jonathan government before it, the new government recognises the security and economic implications of the salaries crisis, and has taken concrete steps to ameliorate it. Yet, this is a mere palliative. If some 12 states imaginatively and creatively managed their economies away from that cul-de-sac, it implied that the crises-ridden states were either less clever in financial management or, despite their loud protestations, more unwisely adventurous and reckless.

There will likely not be another bailout, at least not in the next four years. The stricken states must therefore find ways of recalibrating their economies, engaging financial managers to re-examine their finances and staffing, conceiving fewer idealistic or legacy projects, and living and working within their means. It is inconceivable that state Houses of Assembly do not have qualified lawmakers to take their governments to task on the management of state resources. They should now be less patronising of their governors and parties by insisting that sensible and workable policies must be approved and implemented.

July 12, 2015
‘Bailout’ for states not from Jonathan’s savings, says Presidency

THE Presidency yesterday denied claims by the Peoples Democratic Party (PDP) that the relief given to state governments and public sector workers were from savings by former President Goodluck Jonathan’s administration.

A statement by the Special Adviser on Media and Publicity, Femi Adesina, said the PDP claim was false and ridiculous.

The statement reads: “The Presidency deplores the attempt by the PDP and its agents to create an unnecessary controversy over the well-intentioned effort by President Muhammadu Buhari to give some relief to state governments and long-suffering public sector workers.

“We also reject the banal and ludicrous demand by the PDP’s Spokesman, Olisa Metuh, that the PDP government, which was ousted by Nigerians at the last general elections for running the country aground, be given some credit for “saving” the funds that were disbursed as part of the intervention package approved by President Buhari.

“Metuh’s claim that a significant amount of the funds came from savings accumulated in the Excess Crude Account and handed over to the Buhari administration is completely false and deliberately intended to mislead the public.

“As we clearly stated yesterday, the funds approved by President Buhari for sharing to the three tiers of government on Monday came entirely from dividends and taxes paid to the Federation Account by the Nigerian Liquefied Natural Gas Company (NLNG), not from the Excess Crude Account.

“The disbursed NLNG dividends and taxes were paid into the Federation Account in June this year and confirmed by the Central Bank’s Statement to the Federal Government on July 7, 2015. The funds cannot therefore be considered “savings” by the Jonathan Aadministration which left office in May, 2015, as disingenuously claimed by Metuh.”

It added: “Instead of being repeatedly impugned and castigated by the PDP and its agents for honestly telling Nigerians that the nation’s treasury has been immensely depleted and its resources looted or squandered under previous administrations, President Buhari should be commended for the openness, transparency and accountability, which he has now brought to the management of national funds.

“It was in keeping with that disposition, that the President promptly disclosed the accrual of the NLNG dividends and taxes to the Federation Account at his recent meeting with governors and approved the convening of a special session of the FAAC to share it.

“As a governor, who was present at the meeting remarked, under past administrations, the states never had the benefit of such disclosures.

“Mr. Metuh and others who now ungratefully see Monday’s disbursement of the NLNG proceeds as their ‘legitimate’ earnings and not a ‘bailout’ from the Federal Government may wish to tell Nigerians if such earnings were ever disclosed by the PDP Federal Government and paid to the states in the past.

“The public may also wish to note that the Buhari administration itself has never referred to the actions which it has taken to ease the current financial difficulties of states as a ‘bailout’.”

July 9, 2015
Bailout: Don’t be ungrateful, APC tells Fayose

The All Progressives Congress (APC) in Ekiti State has slammed Governor Ayo Fayose’s comments that the state’s share of the bailout ordered by President Muhammadu Buhari is the amount due to Ekiti from the Federation Account.

The party described Fayose’s comment as “an act of ingratitude taken too far, irresponsible statement and an attempt to deceive Ekiti people and shortchange workers who are still owed arrears of salaries, allowances and bonuses”.

But the Peoples Democratic Party (PDP) urged the governor “not to bother himself with the APC’s antics”.

The ruling party urged Fayose to “avoid the unnecessary distractions and nuisance the opposition has turned out to be”.

The APC, in a statement yesterday by its Publicity Secretary, Taiwo Olatunbosun, said while other governors, labour unions and workers were thanking Buhari for bailing out states, Fayose chose to grandstand and attempted to play down the good gesture.

The APC challenged Fayose to tell the people what he planned to do with the fund, saying the governor had done little to offer acceptable explanation on how he had managed the state’s finances since coming to power last October.

Olatunbosun said: “His statement that Ekiti wage bill is N2.6billion has given him away as a liar who wants to shortchange Ekiti people again.

“For the avoidance of doubt, the state’s wage bill is N1.6 billion and if we include subventions to higher institutions, pensions and political appointees’ salaries which is N600 million, everything amounts to N2.2 billion. We wonder where Fayose got the figure of N2.6 billion.

“We have said it many times that Fayose is paying some election contractors and he has not denied this categorically. His latest inflation of the wage bill is to prepare workers’ minds that he would not use the bailout fund to pay backlog of salaries and allowances.

“We are aware that Fayose is yet to pay last September salary, last year leave bonus, June salary, March to June co operative deductions, core subject and rural allowance from March to June while he has not released four months subventions to the state university. He also owes pensioners a backlog of allowances as well as traditional rulers.

“Fayose’s claim that the bailout fund is the state’s entitlement is very unfortunate as the fund is not Ekiti State allocation from the Federation Account but a special intervention fund for which he is supposed to be grateful to the President.

“His mentor, former President Goodluck Jonathan, did not give such bailout to any state. This has revealed that Fayose has not stopped his hate campaign against the President even after electoral campaign is over. At any given opportunity, Fayose has continued to lambast and embarrass the President.

“Fayose’s outburst is ingratitude of the highest order which does not represent the collective opinion of Ekiti people, who are always appreciative of good deeds.

“President Muhammadu Buhari should be praised for directing that all money should be paid into the Federation Account from where the bailout money came from. This is a result of his anti-corruption drive.

“While we apologise to President Buhari on behalf of genuine Ekiti people and thank him for the bailout fund, we urge Ekiti workers to be vigilant and monitor how Fayose spends the fund. Anything short of paying the backlog of their salaries and allowances should not be accepted.”

But the state PDP Chairman Idowu Faleye, in a statement yesterday, praised Fayose for pursuing his development projects “in the face of the war against him”.

Faleye said: “It could only take a courageous man to still have time to think about the development of his state with the kind of war waged against him by the outgone APC lawmakers.”

The PDP chair described the actions of the opposition party as enough indices to truncate democratic settings and cause wanton destruction of life and property.

He said: “We commend the governor for his astuteness, bold steps and love for the people of Ekiti State inspite of the confrontations by the black minded fifth columnists and agents of retardation.

“What we are saying is that the governor should not bother himself with the antics of the APC.”

July 9, 2015
Bailout for states…Beyond Buhari’s N400b intervention

AFTER weeks of being on pins and needles, relief finally came the way of some state governors yesterday. The governors, hardest hit by cash crunch, have been fighting the battles of their lives for their inability to pay workers’ salaries.

The dwindling allocations from the Federation Account due to tumbling oil prices at the international market has worsened the situation for them, forcing them to go cap-in-hand under the Nigerian Governors’ Forum (NGF) to President Muhammadu Buhari for a bailout.

There were hopes yesterday that the distressed states will breathe a sigh of relief, courtesy of President Buhari, who approved a comprehensive package to save the governors from the financial mess.

The bailout will help the states to pay arrears of workers’ salaries after working out the modalities.

President Buhari endorsed a three-pronged relief that will end the workers plight by ordering the sharing of $2.1 billion (about N413.7 billion) in fresh allocation between the states and the federal government.

The money is to be sourced, with presidential approval, from the recent Liquefied Natural Gas (LNG) proceeds remitted into the Federation Account.

Yesterday’s deft political maneuver came as a great relief as getting such intervention from the immediate past administration would have been difficult than squeezing water out of the rock.

However, this presidential directive has its other side.

The federal government cannot be seen to be playing the Father Christmas to state governments that have refused to diversify their revenue sources and their respective economic bases at a time of severe oil price volatility, thus further depleting the national treasury instead of shoring it up.

The move, by President Buhari, may encourage state governments to be lazy and perpetually dependent on allocation from the Federation Account to the detriment of being creative with Internally Generated Revenue (IGR) and harnessing the natural resources in their territories and create jobs and more sources of taxable income for the states.

Many states’ governments have over the years shunned repeated appeals to diversify their revenue sources and be less dependent on allocations from the federation account.

It is believed that the withdrawing $2.1 billion from the Federation Account, arguably from the Excess Crude Account (ECA), will leave that particular account literally empty.

The other leg of the bailout is a directive to the Central Bank of Nigeria (CBN) to come up with a “packaged special intervention fund that will offer financing to the states, ranging from between N250 billion to N300 billion.

It is in a form of soft loans that can be accessed by the states for the purposes of paying backlog of salaries.

“The CBN will also make available the special intervention fund to states and then negotiate the terms with individual states,” the directive stated.

The CBN has several intervention funds applicable to different segments of the economy. Most, if not all, are designed as soft loans with single digit interest rates.

Besides government guarantee, the CBN also guides beneficiaries of the facilities on how best to apply the fund so as to make the repayment stressful.

The apex bank, as government’s bankers, may demand to know how benefiting states will pay back the soft loans if such facilities will be used to pay salary arrears.

So, the question the CBN will have to answer is how it hopes to recoup the loans from the states, in the event that they find it difficult to pay. Will the CBN have the courage like the Nigerian National Petroleum Corporation (NNPC) to withhold partial accruals to these states from the Federation Account?

The third and final leg of the bailout as directed by President Buhari is a debt relief programme to be “proposed by the Debt Management Office (DMO) which will help states restructure their commercial loans currently put at over N660 billion and extend the life span of such loans while reducing their debt-servicing expenditures.”

By extending the commercial loans of the states, the third option will make available more funds to the states, which otherwise would have been deducted from source by the banks.

Under the new arrangement, the Federal Government will use its influence to guarantee the elongation of the loans for the benefit of the states.

Getting the DMO to help the states secure an extension of their commercial loans from Deposit Money Banks (DMBs) may be easy. But, postponing the commencement date for repaying state loans will not wipe off the loans.

The DMBs will factor this into their books with the attendant interests that will accrue to them. Interestingly, since the Federal Government will be guaranteeing these loans, the nation’s debt profile will also take a significant leap, especially the domestic component of the debt profile. This in turn might increase the country’s debt to Gross Domestic Product (GDP) ratio out of its current comfort zone.

With commercial banks and the CBN pulling the debtor states out from the tight corner, the governments may soon buckle in the knees and run cap-in-hand to the president for another round of bailout.

The intervention was considered at last week’s National Economic Council (NEC) meeting and designed specifically for workers. This knee-jerk reaction to the problems of the states looks like a workable short-term plan but with dire long-term consequences for the states that refuse to be proactive in their IGR drive and the exploration of the natural resources in their domains to insulate them from future doom.

President Buhari’s intervention is to alleviate the sufferings of workers, some of whom have not been paid for over ten months.

Special Adviser to the President on Media and Publicity Femi Adesina confirmed the development.

He said: “A special package was on the way for the workers because the President is deeply concerned about the plight of the workers who have been unpaid for many months.”

In his speech while inaugurating the NEC penultimate Monday, President Buhari asked the Council, which is a constitutional advisory body to the president and comprising of state governors, the CBN and the Accountant-General of the Federation, to, “as a matter of priority, consider how to liquidate the unpaid salaries of workers across the country, a situation he observed has brought untold hardship to the workers.”

The packages that have now been approved by President Buhari is expected to go into effect immediately as the President is said to have directed that the release of the funds should be made as soon as possible to assuage the plight of thousands of workers on federal and state governments’ payroll.

At least 12 of the 36 states of the federation were having challenges paying their workers’ salaries. The debts were, approximated at more than N110 billion.

The figure represents the salaries being owed by governments of 10 of the states, including: Osun, Rivers, Oyo, Ekiti, Kwara, Kogi, Ondo, Plateau, Benue and Bauchi. In the past five years, state governments have been at loggerheads with the Federal Government over the sharing of savings in the ECA.

There have been claims and counter claims over the management and eventual sharing of proceeds of the ECA by the former administration of Dr. Goodluck Jonathan administration.

There are also federal government employees, whose salaries have been unpaid for months. Such workers will also partake in the presidential intervention.

Experts say the bailout will boost the purchasing power of a good percentage of the local consumers and thereby reflate the economy.

While the Buhari administration might continue to guarantee and bailout erring state governments, another government might take a different view and leave the states to their creativities as allowed by law.

In its recently released report on poverty findings, ActionAid alleged that “state governments, Ministries, Departments and Agencies (MDAs) and local governments have mismanaged public funds, while money laundering has become a major means by which the country’s wealth is siphoned and stashed abroad.”

The report, also noted that “the private sector is involved in corruption through kick-back, under-declaration of profits and non-performance, while operations in the oil and extractive industry was still opaque and prone to corruption.”

Some of the recommendations made by the report included the creation of “special programmes for areas with high incidence of poverty through geographical targeting; social protection policy; strengthening of state-citizen relations; making corruption a development issue; compliance with the FoI Act by all MDAs; autonomy for all anti-corruption agencies, (ACAs,) to enable them discharge their mandate in fighting corruption; public reward system; and increased support and commitment to NEITI to ensure accountability in the extractive industry.”

The states must, however, not see the bailout as a free meal. It is a loan, no matter how soft, they have to repay. They must also learn from the pitfalls of the past by being prudent in the application of resources at their disposal.

July 7, 2015