Bailout for States Not Sustainable, Say Analysts


Vice President Yemi Osinbajo addressing the National Economic Council Meeting at the State House Abuja… recently

Kunle Aderinokun and Olaseni Durojaiye

Economic analysts and operators in the private sector have described bailouts to states as unsustainable and capable of causing ‘moral hazard’ even as they posited strategies that could help state recover from their current poor economic conditions.

The suggestions are coming on the heels of the disclosure by Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, that about 30 states have so far benefitted from the salary bailout from the bank as at May 18 even as 35 states have applied for the facility which is backed by the Excess Crude Account.

Emefiele’s disclosure followed the approval of a Fiscal Sustainability Plan by the National Economic Council which contained plans to help the states get out of their economic woods.

In an interview with THISDAY, Director General, Lagos Chamber of Commerce and Industry (LCCI) and the President, Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, canvassed for fiscal discipline and the need to engender business friendly environment in the states to attract private business and increase internally generated revenue.

According to Yusuf, “Bailout to the state governments is unsustainable. What they need is fiscal discipline. Besides, many of the states are carrying excessive workforce and they seemed to be afraid of the social consequence of retrenchment. This is besides that the spending pattern of most of the state governments is still tailored towards an oil boom revenue structure and there is the need to adjust to the current economic realities.

“There is also the need to address fiscal federalism. Resources are too concentrated at the centre and the state carry much more burden than the federal government so there is the need to decentralise some revenue points like VAT, property tax, education, even ground rents in the case of solid mineral resources. The only tax that they get is Pay As You Earn (PAYEE). There is also the need to change the framework so that state governments can relinquish some infrastructure services to the private sector to handle,” Yusuf stated.

On his part, Jacobs noted that, “the lifestyle of many of the state governors don’t seem to understand that we are in a regime of austerity measure. I don’t subscribe to salary bailout; if they cut their coat according to their sizes they will be able to pay staff salary,” Jacobs argued.

Suggesting way out, Jacobs posited that, “what the states need to do is to create an enabling environment that will attract business to their states as a way to increase internally generated revenue (IGR); that will help them to be less reliant on federal allocation,” he insisted.

Meanwhile, a former Managing Director of Guinness Nigeria Plc, Seni Adetu, has expressed mixed feeling on the recently approved Fiscal Sustainability Plan approved by the National Economic Council.

Reacting to THISDAY enquiries, Adetu explained that “I take this news with mixed feelings. On the one hand, it is great to see the partnership between the Federal and state governments for the betterment

of the economic situation of the “common” man. It even makes more sense if the funds are channeled to the appropriate priority areas for the benefits of the local citizens. We all agree we need to reflate the economy and refill the pockets of the Nigerian consumers to create and expand aggregate demand. If this development results in that outcome – how good? Let salaries be paid, let the those contractors who are genuinely owed by government be paid and so on.

Furthermore, Adetu said; “My concern however, is that this potentially makes the states to be complacent and uninventive in their revenue generation drive. In the short term, it works, but in the long term, every state should seek as much financial independence as possible as it would be fool hardy to imagine that the Federal Government would remain a go-to-for-bailout entity for life. Each state should set itself performance targets in this regard, and state governors should wear the Private Sector lens where accountability and good governance – including in the management of resources are killer requirements of an inspirational leader,” Adetu maintained.

In like manner, a Lagos-based economist with a leading economic advocacy group, Wilson Erumebor, argued that the fiscal sustainability plan was a good initiative if judiciously adhered even as he said bailout is necessary at some point, “but if it becomes recurring it is capable of causing “moral hazard as the states government will become complacent if they know the federal government has got their back they can continue with their financial indiscipline,” he argued.

Explaining further, Erumebor contended that “most of the states are not operating in a competitive manner. They rely so much on federal allocation whereas they have one mineral resources or the other which they can explore to attract investments to the states. They should look inward into areas where they have competitive advantage, this is the way they can be self reliant. Bailout is not sustainable,” he added