Bailout Refunds: Why state governments may struggle to pay salary

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Fayemi
Fayemi

By Anayo Ezugwu

THE demand by the federal government that state governments must repay the N614 billion it offered them under the National Budget Support Loan Facility is creating anxiety among the governors. Most of the governors are jittery that the refund is being muted at a time many of the states are wondering how they can pay the new national minimum wage of N30,000.

As such, they have given the federal government a condition under which the refund can be made. They have insisted that there must be a reconciliation of what each state will refund before any step would be taken for the deductions. The governors took this decision after the National Economic Council, NEC, meeting with Vice President Yemi Osinbajo on Thursday August 22.

A statement after the meeting said: “We agreed in principle on the need to refund the N614 billion, but a condition that deductions must be done after reconciliation of the actual intervention funds given to the states. We all decided to set up a committee comprising all the parties and stakeholders. We do not want a repeat of how states paid in excess for the Paris-London Clubs loans.

“It was only when the Buhari regime came in that the refunds of the excess loans repayment was effected. The federal government and states mutually consented to defer the deductions from the statutory allocations or other accruals until a proper reconciliation has been done to the satisfaction of all the parties.”

The states fear that refunding the money may plunge them into further financial crisis. Many of them are already struggling to pay salaries and carry out other activities. Zainab Ahmed, minister of finance and budget and national planning, said each state is likely to refund a total of N17.5 billion. With the economy in sluggish growth and global oil price outlook grim, hard times may be ahead for the states.

For almost 50 percent of the states, N17.5 billion is nearly their annual FAAC allocations; at just N1 billion per month, it will take almost two years to pay off at great cost to the states. The states are also over burdened with huge debts. Recent figures by the Debt Management Office, DMO, showed that debt owed by state governments and the FCT as at March 31, 2019 stood at N3.97 trillion, with Lagos State, which has N542 billion debts leading the pack.

Other states with substantial domestic debts include Rivers N225 billion; Akwa Ibom N199 billion; FCT N163 billion; Osun N147 billion; Kano N121 billion; Ekiti N118 billion; Imo N97 billion; Adamawa N97 billion; Benue N96 billion and Kogi N96 billion. Similarly, external debt profile of the states and FCT as at December 31, 2018 was N1.52 trillion. Again, Lagos leads with N513 billion, followed by Edo N99.4 billion, Kaduna N81.1 billion, Cross River N67.9 billion, Bauchi N45.4 billion, Enugu N45 billion, Anambra N38.5 billion, Ekiti N38.8 billion, Oyo N37.7 billion, Ogun N37.1 billion, Osun N35.4 billion and Abia N35.4 billion.

The DMO data covered debts incurred by states through official borrowings such as multilateral and bilateral foreign and local financial institutions, investment securities like bonds and treasury bills, but not debts incurred using local contractors, suppliers, and consultants, which from evidence is a handful.

For most of the states, both the IGR and FAAC allocation combined cannot meet their salary obligations. For instance, the figure from the National Bureau of Statistics, NBC, showed that in 2016, 30 states generated a total of N516 billion in revenues, but spent N1.4 trillion on wages. The balance of course, came from borrowing and such interventions as Paris Club refund.

Vincent Nwani, investment and business analyst, said most of these states are insolvent. “Unfortunately, a state cannot be bankrupt; otherwise I would have used the word bankrupt. If they were corporate organizations, I would have said they are bankrupt. They are insolvent to a level where they cannot easily meet their short term basic financial obligations. At some point, these states may not be able to borrow again.

“By the time rating agencies begin to rate them, they may no longer be able to borrow. And that’s where we are going. It’s already happening. Some of the state governments that were able to access loans last year were asked to go and get federal government guarantee. Getting federal government guarantee is not just going to the executive; it has to come from the National Assembly. It happened with Kaduna, and even with Lagos – as rich as the state is, it is still the most indebted State in the country,” he said.

On his part, Emma Nwosu, economic analyst, said the states no longer have much option. “They (state governments) maintain fleets of cars, hundreds of assistants and all those have nothing to do, all that has to stop. There is a lot of waste in government. I don’t know what they are still doing with security vote that is so opaque. We must begin to do things right if we must survive,” he said.

State governments’ finances had faced severe strains since 2015 when the current economic down-turn started, leading to recession between 2016 and 2017. President Muhammadu Buhari was compelled to come to the rescue of the state governments shortly after assuming office when most of them could not pay salaries of workers.

Also the states were saved by the reimbursement from the excess Paris Club loan refund, which contributed immensely in supplementing their declining revenues. However, the price of crude oil, which is the main source of revenue for the country, has remained tepid most of the year, hovering around the budget bench mark of $60 per barrel, leaving revenue projection in jeopardy and the federal government at its wits end.

– Sept. 16, 2019 @ 15:25 GMT |

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