• Monday, June 24, 2024
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The N90bn gamble … A loan or another bazaar?

kemi adeosun
Once again, the Federal Government is playing its Big Brother or Father Christmas role with N90 billion aimed to bail out the 36 states of the federation plus Abuja, the federal capital territory, from bankruptcy. This is coming barely 12 months after the first N500 billion bailout for the states which raised enormous dust that is yet to settle.
Recall that exactly one month into the Muhammadu Buhari administration, the National Economic Council (NEC) reached a decision to offer bailout to states owing backlog of workers’ salaries. The Central Bank of Nigeria (CBN) subsequently disbursed intervention funds for 27 states of the federation.
But investigation by the Independent Corrupt Practices and other related offences Commission (ICPC) into how the bailout funds were managed by the states revealed that most of the states did not disburse the fund for payment of workers’ salaries; rather, the funds were paid into different corporate and personal accounts while some of the states that got the bailout did not owe workers as alleged. It was also revealed that some of the states actually used the federal fund to balance their debt payment to contractors and settle other financial needs outside what the bailout was meant to serve.
That notwithstanding, the NEC again on May 19, 2016 reached another decision to rescue the states out of their financial mess with an additional N90 billion loan which is to cover a period of one year. This time around, however, the Federal Government gave a long list of conditions that states should meet to access the facility.
Kemi Adeosun, Minister of Finance, has also explained that this is not a bailout fund, but a budget support loan facility which comes at 9 percent interest rate or a window which has just been opened to arrest the economic challenges.
“The loan is in two tranches – N50 billion for three months to be shared across the 36 states including FCT and then N40 billion for nine months; the idea is to tie states over for a year so that they rebalance. The loan is an average of about N1.3 billion per state for the first three months and N1.1 billion for the next nine months,” Adeosun explained to state Finance Commissioners during a meeting with them on the Fiscal Sustainability Plan (FSP).
According to the minister, the fund is a loan and it is fully repayable although it has a secured tie against future dividends, revenues and any amount that government might owe the states.
“This is a loan that we have secured from the private sector and it has conditions attached to it. So, it’s actually a loan that is going to be repaid. It’s not a bailout. When you want to borrow money, the lenders set the conditions and these conditions are very stringent; there are 22 of them and the states have signed up to them,” she said.
“The governors unanimously approved the plan; the commissioners approved the plan and it’s going to involve a lot of work in some places. There are a lot of tough conditions. So, the governors and commissioners recognized that these reforms are necessary if they want the states to be fiscally sustainable,” she further said.
A welcome development
The Nigerian economy has been in dire straits following the sharp drop in oil revenue which had been the main oil lubricating the engine of governance at the local, state and federal levels.
Since the past several months during which the oil windfall has plummeted, almost all the states have literally ‘died’, practically unable to meet even their primary obligations, including payment of workers’ salaries.
On Thursday, June 9, Governor Olusegun Mimiko of Ondo State, told protesting workers in the state that the treasury was empty and that the government was struggling to survive.
Earlier in January, Mimiko had advised civil servants in the workforce of his government to take on subsistence farming due to the declining economy of the state and the country at large.
“You can do this at the backyard or front of your compound because I can’t guarantee the financial status of this state any longer,” he said.
“Our monthly wage bill is still N3.9 billion, and all the funds we are collecting from Abuja (federal allocation), oil derivation funds, Value Added Tax, and Internally Generated Revenue put together is N1.3 billion,” he added.
In the face of this, many Nigerians, including renowned economic experts, have declared their support for the FG’s bailout for states as a way of reflating the economy.
Even President Buhari has been worried that many states are unable to pay salaries and blamed it on the nation’s sole reliance on oil over the years, which he described as a huge mistake.
“If from 1999 to at least 2003, oil was above $100 per barrel and an export of about two million barrel per day, how come Nigeria failed to make some arrangement to cushion the effect of a probably volatile oil market? Again, it shows failure of the last administration,” Buhari had said last year.
Many therefore, see the recent N90bn FG loan as one of the best things to come out of the Buhari administration, especially as it is coming at this time when economic activities are dying down and many households are unable to eat two square meals, pay house rents, school fees and other needs due to unpaid salaries.
However, because of the way the first bailout was handled by some of the state governments who saw it as another oil windfall from the Big Brother that could be spent anyhow, concerns are mounting over a possible fate that could befall this second one.
Strict conditions for fund access
Before states can get any part of the N90bn loan, they must fulfill a number of stringent conditions. These include that the states publish audited annual financial statements within nine months of financial year end; comply with the international public sector accounting standards (IPSAS); publish state budget online annually; publish budget implementation performance report online quarterly; develop standard IPSAS-complaint software to be offered to states for use by state and local governments; set realistic and achievable targets to improve independently generated revenue (from all revenue generating activities of the state in addition to tax collection) and ratio of capital to recurrent expenditure; implement targets, and implement a centralized treasury single account.
Others are that the states have quarterly financial reconciliation meetings with Federal Government to cover VAT, PAYE remittances, refunds on government projects, Paris Club and other accounts; share the database of companies within their state with the Federal Inland Revenue Service (FIRS); introduce a system to allow for the immediate issue of VAT/WHT certificates on payment of invoices; review all revenue-related laws and update obsolete rates/tariffs; set limits on personnel expenditure as a share of total budgeted expenditure; carry out biometric capture of all states’ civil servants to eliminate payroll fraud; establish efficiency units; Federal Government online price guide to be made available for use by states; introduce a system of Continuous Audit (internal audit); create a fixed asset and liability register; consider privatisation or concession of suitable state-owned enterprises to improve efficiency and management; establish a Capital Development Fund to ring-fence capital receipts and adopt accounting policies to ensure that capital receipts are strictly applied to capital projects; domesticate Fiscal Responsibility Act (FRA); attainment and management of a credit rating by each state of the federation; Federal Government to encourage states to access funds from the capital markets for bankable projects through issuance of fast-track Municipal bond guidelines to support smaller issuances and shorter tenures; and comply with the FRA and reporting obligations, including no commercial bank loans to be undertaken by states, and routine submission of updated debt profile report to the DMO.
Strict as these conditions appear, knowledgeable Nigerians have said they are routine things that were supposed to have been in place in the states if the governors were foresighted in driving developments in their various states.
According to some observers, the above conditions will bring activities of the states into the open, revealing things that where hitherto shrouded in secrecy and that it will keep the governors on their toes, especially in those states where the governors have gone to sleep or become too lazy to think of how to grow their IGR.
They add that it may also be a chance for the states as many of them, eager to grab at the FG’s offer, may truly use the opportunity to begin to restructure their economies in a more sustainable way.
“They need to do this, or else they may perpetually depend on Abuja for monthly handouts that are fast fizzling out,” an economic expert tells BDSUNDAY.
Another bazaar?
Nigeria has had the misfortune of always getting leaders who think so little about the people they lead and their future that at the slightest opportunity, they live in opulence even when all around them are starvation, deprivation, hunger, want and woe.
When the Federal Government created an account for the excess revenue from oil called Excess Crude Account (ECA), it was the state governors who even went to court to compel the Federal Government to share the excess and use same to maintain and sustain their lavish lifestyle.
As difficult as the times are in Nigeria today, the governors have not shown, except by mouthing it, that they are in tune with the reality on ground. Even the president whose other name is purported to be austerity has not truly exhibited a lifestyle that reflects the mood of want and woe that pervades the country.
“Many of the governors are a curse to their states, not blessing. Their lifestyle belies whatever they say when they talk about the suffering people of Nigeria. Many of these governors could best be described as clowns who dominate a theatre of the absurd which they have turned Nigeria into,” says a middle-aged civil servant who pleaded anonymity.
The hope among many Nigerians, therefore, is that this N90bn should not be another bazaar for the governors. They argue that after all there should not have been any need for the bailout if the government, both states and federal, had managed their resources well or invested in profitable ventures during the years of plenty when oil sold for well over $100 per barrel.
Many have also expressed support for the strict conditionalities outlined by the FG for states that want to access the fund, saying it would at least make the governors realise that it is not a free donation.
They, however, urge the FG to ensure that these rules are followed to the letter and not bend them in the middle of the game to give favourite governors an easy passage. This is given that Nigerians have seen flagrant display of impunity by some government officials and how offending government officials have always been treated with kid-gloves simply because they belong to the political party that produced government in power.
Magnus Achu, an accountant with a firm in Lagos, tells BDSUNDAY that he has no problem with the N90 billion provided Abuja was sincere in its plan that it is going to be a refundable loan.
“Ordinarily, I find nothing wrong in the bailout or loan or whatever name it is called, but essentially I think that why some people express reservation over it is because of the nature of the politicians at the state level and the kind of selective and discriminatory party politics being played in the country,” Achu says.
“What do I mean by that? I see a situation where at the end of the day, only non-APC states would be chased about to refund the loan. The APC states may be excused and somebody will tell us that they were the people who voted for the president. This is where the doubts as to whether it is a loan or just another bazaar stemmed from. You do not blame those who reason this way because of what we have seen in the system since last year,” he adds.
“Given the way politics is played traditionally in this country, some governors especially those from the ruling political party may enjoy some waivers while those from the opposition parties may have to cope with the set conditions for obtaining the loan.
“Where this is allowed to play out, it will give room for impunity and misapplication which will ultimately defeat the objective of the bailout. And both the economy and the households would be worse for it,” says Folu Banjoko, a Lagos-based medical practitioner.
“The All Progressives Congress (APC) governors should not, for whatever reason, collect this loan and use same to feather their nests as they would always want to, but rather apply it for the purpose it is meant to serve,” he adds.
States must improve IGR
Meanwhile, as state governments continue to struggle in the face of dwindling allocations from the centre, many Nigerians have argued that it is time for the states to think outside the box to improve their internally generated revenue.
BDSUNDAY fact check reveals that in line with this new thinking, some states have started improving on their land administration, by increasing speed and convenience and reducing cost of registration of property for both residence and business.
A recent survey by BusinessDay revealed that Lagos and Kano are topping the rest 34 states, the Federal Capital Territory (FCT) Abuja inclusive, in this development which analysts believe will grow the IGR of these states in both the short and long run.
According to the survey, Lagos particularly has so improved on the various aspects of its land administration that its Lands Bureau in just 10 months (May 2015 to March this year) generated revenue totalling N8.1 billion with application for Certificate of Ownership (C of O) alone contributing over N3 billion.
While Lagos and Kano have improved thus, Kogi State government has decided to focus on agriculture to aid its IGR because it believes agriculture provides the ‘quick win’ to bridge the funding gap created by dwindling fortune of crude oil and mitigate its accompanying challenges.
The state governor, Yahaya Bello, made reference to this when he received the 5th World Bank/FGN joint mission to Kogi State on FADAMA III AF Implementation team recently.
The governor believes that earning from agricultural resources can replace crude oil earnings within a decade if vigorously pursued and embraced by Nigerians.
“My vision and yearning since assumption of office has been to transform Kogi State into an industrial/economic destination with the agricultural sector playing a pivotal role, particularly through massive support for cassava and rice value chains,” he stressed.
In Enugu State, Governor Ifeanyi Ugwuanyi recently reconstituted a new revenue board to ensure effective financial management, even as he charged the members to come up with new ideas for effective control of the state revenues.
According to him, the state is one of the few that receive the lowest in the federal allocation table, hence, the need for new strategies to beef up and protect the states’ IGR to enable it fulfill some of its obligations effectively.
“My government as a result of the current economic condition is struggling to meet its financial commitments to pay salaries, to fund developmental activities, ensure social services and maintain security among others,” Ugwuanyi said.
“I had earlier envisaged this situation when I warned in my inaugural speech that revenue generation agencies should be ready to intensify efforts to generate more revenue to fund governments’ development efforts,” he added.
Many Nigerians say this is the way all other states must go if they must remain economically viable going forward.