State Finances: Is Fiscal Discipline the Way Out?
have also indeed made legitimate demands in terms of requesting for payment from the federal government on projects undertaken by state governments. It is their right. They can demand payment.”
Some analysts were also taken aback at the desperation of the state governors, especially with their call for the sharing of the tax paid by LNG at a period people felt caution and frugality should have been the order of the day. Ademola, in his opinion, said “It will appear that the decision to spend down the excess crude account is part of the cause of this present problem. The fund which would have been used to cover the gaps in national revenue has been spent during the period of high oil prices when good savings would have been made. The states embarked on increasing the size of government through employment drive in the public sector and expensive projects which is becoming unsustainable. I think the lesson is still being learned now and we can only know how much lesson is learnt through how they respond going forward. “At the moment, they are only thinking of sorting out the debts through salaries and on-going projects. Going forward however, I will expect a reduction in the size of government, a proper matching of assets with liabilities (projects etc.), creative ways of generating revenue internally and a strategy for saving for raining days. That is when lessons would have been learnt, otherwise no lesson learnt. But it is too early to determine now.” Wusu stressed the need for restraint on the part of the governors as far as their rising appetite for revenue distribution is concerned.
“On sharing the payment of the tax collected from the LNG to the federation accounts to three tiers of government. I think there are two points here. The first point is that if the investment made in LNG is done on Federal Government`s account on its own behalf, then it may not necessarily share the dividends with states. However, the second point is that if the investment is made from the Federation account on behalf of the Federation, then the state can demand their share. “However, I think the governors should exercise caution on this so that what played out during the last administration should not re-emerged. Such monies should serve as savings irrespective of the economic challenges the country is currently facing. For instance, the excess crude money should have served the country better to cushion the effect of revenue decline from oil. But, it was shared among the states based on popular demand by governors, which explain why we are in a precarious situation right now with the inability to pay salaries.
“For me, the thinking of governors now should be on how to rebuild buffers at this time and not to share all. Governance is also about developing enterprising solution and ability to seek internal opportunities that would better the lot of the citizens. Such opportunities abound in many states of the federation as we speak. My take is that while the federal government assists the state to come out of the current economic challenges, the various state governments should also begin to device strategies to increase their Internally Generated Revenue. They should be more enterprising in governance. Create bread and butter income streams internally to assist in recurrent expenditure, while they use the regular Statutory Allocation to focus more on capital projects which will further stimulate growth and development in the states. The current structure of recurrent expenditure gulping more funds than capital expenditure should be looked into. The states should be discipline and be financially prudent at this time.”
Nothing Wrong with Sharing of Revenues
On the appetite of the governors for sharing all the revenue, Enwegbara said there’s nothing wrong with sharing money in the ECA especially given how excess crude account is not just unconstitutional and illegal, but also unnecessary given the growing need for money to be invested in stimulating the entire economy. He said, “Instead of keeping the money usually idle, share the money kept in ECA and allow states decide how best the money can be put into use. In other words, let the co-owners decide what they should do with their own money. I have said time without number that rather than saving for tomorrow, we should be investing to increase tomorrow’s prosperity with new jobs. “In fact, is it not contradictory to keep money in excess crude account while governors still go around borrowing money from banks at high interest rates?
The problem is not with sharing excess crude account. But it is about the governors’ fiscal recklessness. In other words, besides spending their states’ money in their overly insatiable opulent lifestyle, governors have gone ahead to corruptly invest their states’ money meant for the development of state economies in high interest yielding bank accounts,” he alleged. He believed that should the law insist on appropriation as the only way to spend any public money, there’s no way governors would have spent their states’ money on their so-called stomach infrastructure or huge ecological funds and security votes - money they spend without accountability - adding that campaign finance law in the country is so weak that it hardly sets limits on how much politicians can spend and the need for them to declare their very sources of campaign funds.
Call for Amendment of Fiscal Responsibility Act
“To curtail these excesses, I suggest that besides having in place strong legislation guiding campaign spending, we should as a matter of urgency, amend the Fiscal Responsibility Act of 2007 to include a section that makes it a serious crime for any public money to be spent outside appropriation,” he stated. Also calling for the regime of fiscal responsibility act was the chief executive of Cowrie Asset Management Company. According to him, to address the problem on an enduring basis, President Buhari should push for an amendment of the Fiscal Responsibility Bill to limit the amount of a state’s recurrent expenditure to not more than a certain percentage of a state’s internally generated revenue. “For instance, if the recurrent expenditure is limited to 100 per cent of the IGR or even 150 per cent for a transition period of maybe five years, states would be compelled to restructure their bureaucracy so as to become self-sufficient or financially independent. Such law would not only compel states to be more creative in revenue generation but would also make them to utilise their Federal allocations more effectively to build the necessary infrastructure that would catalyse economic growth, job creation and more IGR.”
Way Forward
Pointing out the way forward for the Federal Government, Ademola said, “The options of the Federal Government are limited. In the short term, there is need for reduction in government expenses and blocking of revenue leakages through theft and wastages. Any savings from that could be used to settle some of the debts. In the medium term, there may be need to turn some hitherto social infrastructure to economic infrastructure that may be able to repay itself. New major roads, new seaports and airports, a national healthcare city (like the UAE) and tertiary education can be considered economic and financed through debt and/or international investors. In the long term, there is need for fiscal reform focusing on tax reform and civil service reform.”
However, Enwegbara called for a more drastic policy. “First, President Buhari should demand fiscal probity on the part of the governors, by emphasising the need for them to drastically curtail their fiscal recklessness with public money put in their custody for public good. He should insist that they play by the rules as stipulated in the FRA. Also, the President should demand that all the states set up State Debt Management Offices with the goal of ensuring that their DMOs have the capacity to conduct full-scale and credible debt sustainability analysis before going to borrow,” he said. As far as he is concerned, governors should no longer spend their ecological funds and security votes without appropriation and full accountability. Second, all the states should suspend for the next two years legacy projects until the current fiscal mess is sorted out and their financial houses put in order, including payment of backlogs of salaries owed to civil servants.”