Tag: 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?