As States Await N90bn Budget Support Loan…

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The request for bailout by states has become a recurring decimal. The trend may yet, not abate, given some states’ precarious situation, writes Kunle Aderinokun

Realising the prevailing economic crisis is still affecting most of the 36 states, the Federal Government, last Tuesday, offered to bail them out. The bailout fund, which, this time, totals N90 billion, is not a grant but a loan, called conditional Budget Support Facility (BSF). According to the Ministry of Finance, the affected states could only access the loan after conforming to the stringent 22-point reform agenda called the Fiscal Sustainability Plan (FSP), which was unanimously agreed by the 36 states at the National Economic Council meeting on May 19, 2016.

Five states have so far completed the process of borrowing from the Federal Government’s facilitated N90 billion budget support loan from the private sector, the Akwa Ibom State Governor, Mr. Udom Emmanuel, said on Thursday, quoting Finance Minister, Kemi Adeosun.

The FSP is a framework of reform measures including the requirement to publish audited financial statements and budgets, biometric and BVN payroll review exercises to sanitise payroll costs, as well as limits on recurrent expenditure levels. Other reforms will see States required to set and meet targets to enhance Internally Generated Revenue (IGR), the establishment of Efficiency Units to reduce overhead costs, privatisation of State Owned Enterprises, domestication of the Fiscal Responsibility Act and limitations on securing further bank loans.

On its part the Federal Government has agreed to develop IPSAS compliant software for States to use, and to develop new Bond Issuance guidelines to ease access to the Capital Market for States wishing to fund developmental projects.

Disbursements will be conditional upon States meeting their agreed targets and will be subject to monitoring and evaluation by Independent Monitoring Agents. States that fail to meet the agreed reform targets will be excluded from further funding.

The FSP mirrors the public financial management reforms currently being pursued at the Federal Government level and is expected to set the States on a path towards long term-fiscal sustainability.

Essentially, the N90 billion is a relief to the state governments to enable them pay workers’ salaries as well as put them in good financial standings, thereafter.

According to the terms of the loan, a tranche of N50 billion, which will be repaid in three months, would be shared among the affected states and the remaining N40 billion would be paid in nine months.

This is not the first time the federal government would be coming to the rescue of the states. Just few months into the administration of President Muhammadu Buhari, precisely in July 2015, the federal government bailed out 19 of the 27 distressed states with N400 billion. But sometimes in February, just six months after the initial bailout, some of the states were seeking another bailout. They had been hit by another cash crunch as a result of the prevailing economic realities.

THISDAY checks revealed that most of the states that benefitted from the N400 billion intervention fund, in the form of loans offered by the Federal Government through the Central Bank of Nigeria (CBN), had approached the presidency and the CBN for another bailout.

However, investigation revealed that the Lagos State government had refused to join the states seeking bailout, an obvious indication of the buoyant finances of the state, which generates about N23 billion monthly.

Apart from the CBN intervention, there were other reliefs endorsed by President Muhammadu Buhari and shared to the states, which included the $2.1 billion Liquefied Natural Gas (LNG) proceeds that accrued to the Federation Account.

Following the CBN intervention fund the distressed states received in July 2015, which attracted repayment with interest, deductions were being made in earnest. However, given the dwindled revenue accruing to states from the federation account occasioned by the crash in the prices of crude oil at the international market coupled with the fact most of them are already neck deep in debt to commercial banks, what remains, after all deductions, amount to almost nothing. States were seeking more concessions.

Succour has, however, come for them with federal government offering to support them with loan facility to the tune of N90 billion. Last Tuesday, while announcing another relief for the states, Minister of Finance, Kemi Adeosun, explained that the loan, which would be through the Federal Government bonds, must be repaid with a price.

Stating that the state governors had been briefed on the FSP, she noted that the aim of the FSP was to assist the states to overcome current fiscal challenges while reforming financial management to ensure their long-term viability.

“The first thing to say is that this is not a bailout. It is very important everybody understands this. It is definitely not a bailout. The bailout was done last year July and there were no conditions attached. This is a loan we have secured from the private sector and it has conditions attached to it. So it is actually a loan to be repaid and not a bailout. What I mean by paying the price is that when you want to borrow money, the lender sets some conditions and these conditions are very stringent. There are 22 of them and I think all of you have the fiscal sustainability plan,” she noted.

“Governments unanimously approved the plan and you know it is going to involve a lot of work. They have to clean up the ghost workers, set up efficiency units, reduce the recurrent expenditure, publish accounts and their budgets. A lot of very tough conditions. But what I mean by paying the price is that governors and commissioners believe that these reforms are necessary if they want the reforms to be fiscally sustainable. Every state must be viable. We cannot have a situation where states are solely dependent on the Federation Account. Once the Federation Account is down, they cannot survive,” she added.

But since the affected states have been bleeding since and are already haemorrhaged, the ability of the states to repay the loan has been questioned by analysts.

One of them, an economist and Chief Executive Officer, Global Analytics Consulting Limited, Tope Fasua, berated the states for always asking for bailout and yet their condition still remain the same.

He believed the distressed states are weak debtors and they may not be able to repay the loan, especially with the stringent conditions which will attract higher interest rates.

Besides, he expressed the belief that the states only want to collect the loan, enjoy the liquidity and go back to penury.

“Some states look ‘brain-dead’ and on permanent life support. They collected bailouts before and their conditions did not improve. Now they will collect loans, which I read has very stringent conditions. In the realm of credits, the higher the risk, the higher the interest rates and the more stringent the conditions of a loan. But that too, is why loans to weak debtors go wrong. They are weak because they have little capacity to repay, and when they get these stringent conditions, they enjoy the liquidity for a while only to revert into penury,” he said,

Fasua who said, “I have a bad feeling about the loan and nothing in our polity today tells me that we will come out at the end of it all, smelling like roses,” pointed out that, “the issue is about the structure of Nigeria – the creation of ‘too many’ states, and more fundamentally, the mentality that state governors acquired along the line, as Lords of the Manor.”

To him, “very few, if any of them have changed their lifestyles and spending patterns. It is all about politics. The bigger issue is that the whole of Nigeria has not started thinking outside the box in terms of how we generate our revenues and how we increase productivity.”

Going forward, Fasua advised: “Our revenues should be linked with productivity, and states will only get rich if they can increase per capita productivity among their able populace. It sound ridiculous when some of them say they want to go after taxes (in a depressed economy and in states with no productive base and no prospects of productivity in the near future), or they want to go and get solid minerals.”

“I particularly detest the solid minerals argument because it’s the same mentality of digging the ground, despoiling the environment and selling whatever we get there for cheap. This is what got Nigeria to this point – with petroleum. I call it ‘junkie economics’,” he added.

With the current economic realities and the states’ appetite for hand-outs from the centre, one could only hope for a reversal of fortunes for them, in the shortest time possible. Anything short of this, it would be miraculous for the affected states not to request future bailout.