State Finances: Is Fiscal Discipline the Way Out?
At last, governors of the 36 states of the federation were able to present their demands to President Muhammadu Buhari last week, following the escalation of their financial crises which manifested in the accumulation of salary arrears in more than 18 sta
In line with bookmakers’ prediction, the pomp associated with election victories on one hand, and the successful transition to new government on May 29 on the other, are giving ways to the reality of the uncertainty in the nation’s economy, less than a month after the inauguration of new government at the federal level and in some states. Sooner than expected, the burden of unpaid salary conservatively put at N100 billion began to weigh heavily on a number of states, setting the stage for what promises to be a prolonged labour dispute and the attendant disruptions to the states’ economy. It was this scenario that prepared the minds of members of the nation’s economic community to a very crucial meeting between governors of the 36 states of the federation and President Muhammadu Buhari last week. The media was awash with speculations that President Buhari might approve some financial bailouts to the states as a way of compensating them not only for his electoral victory but for the unprecedented support given him so far. However, the meeting which also had Vice President Yemi Osinbajo in attendance ended without an offer of a bailout by the Federal Government to the states.
At the end of the meeting held on Tuesday, the governors were only able to reach an agreement that the Federal Government should pay debts it owed the states over jobs they executed. Zamfara State Governor and chairman of the Governors Forum, Abdullaziz Yari, who briefed reporters after the meeting, said that instead of a bailout, the state governments were told to look inwards and generate needed funds to clear their debts. The state governors also requested that the Nigerian Liquefied Gas Company’s tax totalling $1.6 billion should be paid into the Federation Account and be shared. They also asked the Federal Government to ensure that monies accruing from the Federation Account should be shared, as stipulated by the constitution.
No Longer Business as Usual
Although the governors have returned to their states waiting for the implementation of their suggestions to the Federal Government, economic analysts said the response of President Buhari to the harvests of complaints of state governors has shown that it will no longer be business as usual in terms of state finances going further. Weighing the implications of the President’s body language at the meeting, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, said the president was merely telling the governors to go back to their states and be fiscally responsible, explaining that “The truth is that the short term measure the governors are looking for does not solve any problem.” He raised the fear that opening a window of bailout for the governors could have an unintended motivation for the state executives to be coming cap in hand to the federal government anytime they owe workers’ salary. He said, “Once you start a bailout, it will never end. Buhari seems to be telling the governors to go back home and find out how they got to their present financial state. If you have to borrow to cover your position, you have to do that on terms and conditions. I believe what Buhari has done is the best and the governors have no choice.” Rewane said time had come for the governors to give account of the various sums of money raised from the bonds market in recent times. “Calling for the restructuring of their debt makes sense but the first question we have to ask is how can a state that borrowed money six months ago from the bond market be having salary arrears? They have arrears on contractors and salary and they also have deposit money in banks because they are getting brokerage and commission on the deposit,” the FDC boss queried.
The Limit of Palliatives
According to Managing Director, Cowry Asset Management Company, Mr. Johnson Chukwu, “The requests by the governors if met by the President would at best serve as palliatives as they do not address the root cause of the inability of some state governments to meet their obligations to their employees. I believe that the problem with those states which cannot pay salaries can be partly traceable to financial recklessness, mismanagement, etc.” In his opinion, an Abuja-based development economist, Basil Enwegbara, believed the demands for the payment of federal government projects undertaken by states was reasonable given that it’s about money owed them by the federal government.
He however, reasoned that “Should their demands be far more, no doubt, federal government might have walked away. Not only because the federal government itself too is struggling with huge fiscal burden, but also constitutionally, there’s nowhere it’s stated that the federal government should bail out state government. Little wonder, the governors were really very cautious and courteous in presenting their demands.” Like Rewane, Enwegbara expressed the fear that “Given how deep the fiscal crisis in the states are, and also the very fact that there are no serious measures in place to tackle the problem head-on, I’m sure that this is only but the beginning of an endless demands from states for bailout. This means that few weeks from now, the governors would be returning to the President, demanding for more money, not for financing capital project but simply to pay salaries, while doing nothing to reduce their overly flamboyant lifestyle.”
Not Far-reaching
Looking at the recent parley from another perspective, the demand by the governors may not be far reaching in the long term but it has the potential to get them out of the current problem they found themselves. This was the position of Head of Strategy, BGL Plc, and Mr. Olufemi Ademola. He said it had been a usual practice for state governments to embark on projects that are the responsibilities of the Federal Government in order to ease the pains of their residents while they expect the Federal Government to reimburse them for the expenses.
According to him, “It is also a familiar argument that the Federal Government usually delays the reimbursement of this expenditure to state governments. So at this period when the mainstay of state’s revenue (statutory allocation) is dwindling, the reimbursement of these monies could help out to reduce the debt overhang on the states. However, in the long run some ingenious way of state financing has to be established.”
In the opinion of Head of Strategy, Sterling Capital Limited, Mr. Sewa Wusu, “Whatever may be the level of economic challenges world over, the government would always be the last resort in terms of intervention. So the onus lies on government to develop its economic strategies to bring the country out of the current economic doldrums. The governors