The current post-election financial state that the majority of the states of the federation find themselves in is the inevitable outcome of the feeding-bottle federalism that we practice within the Federal Republic of Nigeria (FGN). States have been allowed to remain under-developed, immature, and child-like, encouraged in their economic apathy. It was always the question of “when” and not “if” the prodigal children would run to Mother Abuja with their tails between their legs, begging for financial assistance despite previous boasts of independence and self-reliance.
What should now be done?
The financial failure of our fiscal entities is not unique to Nigeria. In the US post-2007 credit crisis, Washington DC has provided financial assistance to US county councils, cities and even states. The world is again watching the recurring Greek tragedy within the Eurozone. Bailouts of fiscal entities, especially sub-sovereign fiscal entities, should never be denied; but these must be accompanied by serious and significant fiscal reforms to ensure that re-occurrence is minimized. Within our very own ‘Naira-zone’, Abuja has the role of Brussels, whilst our insolvent states may be seen as European PIIGS – Portugal, Ireland, Italy, Greece and Spain. In fact, Abuja has a greater flexibility than Brussels due to the fact that not only has it monetary-sovereignty over the ‘Naira-zone’ but it has a central treasury and fiscal authority.
In the Nigerian media daily we hear repeatedly the sponsored calls for bailout; however, where are the calls for reform? If care is not taken, any potential bailout may turn into a simple ‘dash’ where all parties overlook and conveniently forget the real and pertinent issues that have led us to this point.
For real sustainability to be achieved: if there is no reform, there can be no bailout. Mr. President, this unfortunate national crisis should be used as an opportunity to introduce the required fiscal discipline and transparency to state and local government activities to assure our future local, regional, and national development.
If our states are not to become the debtors’ prisons within which our national development is to be incarcerated, then fiscal responsibility must be made to replace the current fiscal rascality. Mr. President, I add my voice to others requesting that a national emergency be declared on this issue and additionally request that a non-partisan, professional and technocratic body be set up to determine the scale of the problem, to design a solution and to develop its implementation programme to ensure that the desired outcomes are achieved. Following are certain items and issues that I believe might be considered in tackling this issue.
(Temporary) deduction of state (and local government) salaries and pensions at source
Until such a time as a state can demonstrate financial capacity and self-sufficiency, it is only fair that payment of salaries and pensions be deducted directly from a state’s allocation. It is simply cruel and unjust that employees and pensioners who, respectively, are currently and have previously contributed to the running of the state be denied their dues for several months. With the advent of the Central Bank of Nigeria’s biometric Bank Verification Number (BVN), it should be trivial to deduct monies directly from the CBN account of states to individuals who have already been biometrically-verified by a neutral third-party. The verification of staff and pensioners as well as the direct payments of monies from the CBN to individuals has already been perfected during the successful privatisation of PHCN in the last administration.
Completion of a full financial audit of state and LG accounts
A full and completed financial audit must be carried out on state (and LG) accounts before any federal money can be loaned. This should be conducted for the past eight years. Similarly, the CBN – as banking regulator – should ensure that no banking body is allowed to issue a new loan or increase an outstanding one (to a state or local government) without a full and completed financial audit. Additionally, the SEC – as capital markets regulator – should ensure that no securities body can issue or underwrite any new debt or additional issues on outstanding debt (to a state or local government) without a full and completed financial audit.
Passing of enabling legislation by state assemblies
To lend federal monies to a state that is not ready or willing to pass and implement the Fiscal Responsibility Act 2007 could be seen as a gross irresponsibility. The passage and implementation of this must be mandatory for any monies to be loaned to states. Additionally, over the period of any developed federal financial assistance programme, adequate monitoring, evaluation, and enforcement mechanisms should be established by the FGN to ensure the state’s adherence to and compliance with the FRA 2007 (and other enabling legislation). Similarly, before assistance is provided and where necessary, all required additional enabling legislation should be enacted and implemented by state assemblies to ensure the suitable environment of checks and balances – e.g., The Freedom of Information Act 2011.
Separation of state and LG accounts
The repeated abuse of LG funds by state governments has been a recurring theme in attempts to deliver development to the grassroots where the majority of Nigerians need it. Any state that requires funds or federal financial assistance must agree to the full and complete separation of accounts before any provision is made.
State financial reform and IGR
The previous items principally address financial transparency. However, as can be observed with the Greek situation and has been witnessed in other government bailouts, medium to long-term plans need to be designed, developed and implemented to ensure financial sustainability and to prevent failure re-occurring. Any recipient state would need to develop with and submit to a Fiscal Reform Programme (FRP) for its creditor – the FGN. If necessary, additional and external capacity and expertise should be sought and procured to assist the states in this. The FRP would highlight multiple initiatives and programmes impacting the future state revenues and expenditures, including but not limited to the following:
An administration right-sizing action plan – This might include the privatisation and/or outsourcing of non-core government activities and the development of new technologies and work methods to improve efficiency, e.g., e-government.
A taxation and internally-generated revenue (IGR) action plan – This would detail how the state would increase revenues from economic activities within it.
A business development action plan – This would detail actions and, where necessary, the required funding to attract and develop new businesses to the state.
Mr. President, taking our cues from other bailout examples, it is felt– despite the current demands for unconditional assistance – that only once the above items are adequately performed and established that federal monies and assistance should be released to states. Deductions of salaries and pensions might well occur before such a time but these would be drawn against current allocations. The goal of any federal financial assistance programme should be the medium-to-long term development of state and local governments to fiscal independence where at the least they are able to cover their own administration and running costs. A sub-sovereign fiscal entity that does not, will not, or cannot generate adequate income to cover its basic running cost is an economic absurdity. It is essentially a ward, or agent, of the sovereign and cannot claim any level of independence.
Mr. President, in your inauguration speech you mentioned the relationship between and the independence of our country’s three tiers of government, stressing that the FG would not fold its arms and close its eyes to activities at the state and LG levels. If any state is serious for development, the afore-mentioned requirements will not be seen as a burden to this goal. Instead, these requirements are the means to this end, by strengthening our agreed democratic method of development and by assigning responsibility and accountability correctly. If any state embarks upon such path of financial responsibility and transparency, any and all federal assistance should be provided to it. If all states – or even a majority of them – were to do so, then any assistance programme could be expected to trigger the most-significant economic reform programme since 1999.