With the newly approved state minimum wage of N27,000, eight states could be devoting their entire internally generated revenue to the payment of worker salaries alone.
The Federal government of Nigeria approved the new minimum wage, which is 50 percent higher than the previous N18,000, in response to the agitation of the labour union since 2018.
The 50 percent wage hike has increased the amount attributed to salary payments, to the extent that the states could now have little or no cash left to spend on capital projects.
Before the implementation of the new minimum wage policy, only two of the 36 states had personnel costs equal 100 percent of internal generated revenue. These states included Osun state and Yobe state.
However, with the new minimum wage, that number has increased to eight (8) states.
They include 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 of 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.
According to GTI, “This implies an average recurrent expenditure increase of each state by a minimum of 6.5%, without a proportionate increase in IGR in the short term.”
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.
According to 2017 states-of-states report of Budgit, excluding states like Lagos, Rivers, Kano and Kastina, other states have their average internal generated revenue (IGR) below average monthly recurrent expenditure.
The new minimum wage of state increases slightly the purchasing power of its citizens by $25 at an exchange rate of N360/$1 to $75. However, compared to exchange rate of N198/$1 five years ago, new state minimum wage is $15.9 lower.
While the new minimum wage doesn’t increase real income value of the state’s citizens 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.
According to a report by GTI, “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.”
“The downward pressure on prices experienced in the crude oil market which accounts for 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,” said Damilare Asimiyu, an analyst at GTI.
David Ibidapo
