With the newly approved national minimum wage of N27,000, eight Nigerian states could be devoting their entire internally generated revenue to the payment of workers’ salaries alone.
The Federal Government of Nigeria approved the new minimum wage for state governments, which is 50 percent higher than the previous N18,000, in response to the agitation of the labour union since 2018, but said it would pay its workers N30,000.
Even though the House of Representatives passed a minimum wage of N30,000, with public expectation that the Senate will uphold the decision of the lower chamber, the N27,000 minimum wage for states stands until the legislators’ decision receives the president’s assent.
The 50 percent wage hike has increased the amount attributed to salary payments by states, leaving little or nothing from the IGR to deploy to other causes.
Before the implementation of the new minimum wage policy, only two (Osun and Yobe) of the 36 states had personnel costs exceeding 100 percent of internally generated revenue.
Osun State recorded an IGR of N4.77 billion as at Q2 2018, with a budgeted average monthly personnel cost of N5.33 billion or 112 percent of total IGR. Yobe State recorded an IGR of N1.62 billion in the same period, with a budgeted average monthly personnel cost of N1.81 billion or 112 percent of total IGR.
However, with the new minimum wage, that number has increased to eight states – Osun, Kebbi, Zamfara, Borno, Adamawa, Taraba, Yobe and Benue States. For all eight, their monthly average personnel costs exceed their IGR.
In addition to the eight states listed, 16 others will see average monthly personnel cost accounting for more than 50 percent of IGR. This means more than 50 percent of internally generated revenue of the affected states will be used to pay salaries.
BusinessDay analysis shows the total average monthly personnel cost of states in the federation totalled N113.75 billion as at 2018.
An increase by 50 percent of minimum wage of states to N27,000 will increase average monthly personnel cost to N170.63 billion.
“This implies an average recurrent expenditure increase of each state by a minimum of 6.5 percent, without a proportionate increase in IGR in the short term,” said GTI, a Lagos-based international investment banking firm.
While Nigerian states struggle to reduce their domestic and foreign debt portfolio, analysts opine that the approval of the new minimum wage by the FGN may likely pile more pressure on their debt profile.
Excluding states like Lagos, Rivers, Kano and Kastina, other Nigerian states have their average internally generated revenue (IGR) below average monthly recurrent expenditure, according to 2017 state-of-the-states report of Budgit.
The new minimum wage of N27,000 increases slightly the purchasing power of state workers by $25 to $75 at an exchange rate of N360/$1. However, compared to exchange rate of N198/$1 five years ago, the new minimum wage is $15.9 lower.
While the new minimum wage doesn’t increase real income value of state civil servants due to the persistent devaluation of the naira, it, however, increases debt levels of states significantly assuming debt as a major source of financing new wages.
“The inability of many state governments to generate significant IGR independent of monthly FACC allocation suggests there may be serious headwinds ahead given the cloudy outlook for crude oil demand and prices in the global market,” GTI said in a recent report.
Damilare Asimiyu, an analyst at GTI, said given “the downward pressure on prices experienced in the crude oil market which accounts for a major proportion of income source for Nigeria, state governments will need to expand revenue base for a successful implementation of the new minimum wage or risk an expansion in debt portfolio”.
David Ibidapo
