On the Monitoring of Budget Support Fund in States


The decision of the federal government to monitor the utilisation of the budget support fund by states is a good attempt to promote transparency and prudence, but such monitoring should not be allowed to further weaken the federating units and pose fresh problems for the country’s federal structure. Vincent Obia writes

At the heart of the on-going effort by the federal government to monitor the use of the budget support fund it has provided for the states is a simple logic: he who pays the piper calls the tune. Following widespread allegations of misapplication and diversion of the fund in some states, the federal government has decided to pay close attention to the utilisation of the loan facility it created to help cash-strapped states meet their financial obligations to the citizens. It has appointed firms to audit states’ utilisation of the support funds.

While the monitoring policy of the federal government is a logical step that would help to ensure transparency and prudent management of the loan facility, utmost precautions should be taken to avoid anything that can further weaken the states. The ignominious level of dependence on federal support by the states is bad enough. It is another terrible statement of the politician-made contradictions in Nigeria’s style of federalism. Yet, the authorities should be wary of extremes – hidden and unhidden – that may cause a further erosion of the autonomy of the states at a time when more and more Nigerians are calling for restructuring in the direction of true federalism.

The financial support facility for the states, variously called bailout or budget support fund, started since 2015 in the wake of the record fall in crude oil prices, which resulted in a huge drop in federal revenues. The fall in federal revenues meant a further impoverishment of the states, which are almost wholly dependent on federal revenue allocations under Nigeria’s pseudo-federal structure. At the peak of the financial crisis, only a handful of states were able to meet financial obligations as basic as payment of workers’ salaries.

The federal government gave the states bailout funds, which many of them allegedly misused. But it continued the financial assistance to states with the establishment of a N510 billion budget support facility, which all the 36 states of the federation, except Lagos, started accessing since June last year.

The federal government says the fund is a standby loan facility designed to bring immediate financial relief to state governments any month the distributive fund for sharing among the three tiers of government is less than N500 billion. Qualification for the facility is dependent on adherence to a 22-point Fiscal Sustainability Plan, which includes publication of audited annual financial statements within nine months of the end of each financial year, compliance with the international public accounting standards, quarterly publication of budget performance report online, and development of a feasible plan for improvement of internally generated revenue.

Other conditions for accessing the budget support fund involve implementation of the Treasury Single Account, sharing the database of companies within each state with the Federal Inland Revenue Service to enhance collection of the Value Added Tax and the Pay As You Earn tax, reform of the legal framework for revenue collection, reduction of wastages through the establishment of efficiency units, introduction of the biometric payroll system, and domestication of the Fiscal Responsibility Act.
The government has been monitoring the states’ adherence to the conditions for the financial aid.

But last week, the Federal Ministry of Finance announced the appointment of some private accounting firms to appraise the implementation of the Fiscal Sustainability Plan by the states. Minister of Finance, Kemi Adeosun, says the firms are “expected to vigorously monitor, evaluate and verify the performance of the states against the agreed milestones set by each state government under the Fiscal Sustainability Plan.”

She says state governments that fail to implement the conditions would be taken off the loan facility, which is essentially meant to help them pay the salaries of their workers.
The measures adopted by the federal government to ensure adherence by states to the conditions of the budget support fund are, certainly, a step in the right direction. Apart from following the maxim that the one who pays for something determines its use, the measures would help to enhance financial accountability.

The protest in some quarters against the idea of federal monitoring of the budget support fund in the states, based on the argument that only the Houses of Assembly of the respective states have the right to oversight the executive in the states, does not hold water under the circumstances of the loan. It was the states that signed on to the facility under the established conditionality and they are obliged to respect the various agreements. Be that as it may, the federal government should avoid the temptation of manacling the federating units and pulling the country down to more unitarianism. The central government should, instead, use the opportunity to help in building the capacities of the states and enhancing their fiscal autonomy.

Surely, the employment of independent auditors to assess compliance with the loan conditions would help to reduce accusations of political bias. But President Muhammadu Buhari and his All Progressives Congress should ensure that the reports of the audit firms are implemented impartially.