Again, States Seek Another Bailout, Osun Worst Hit

Lagos state government refuses to seek bailout

Six months after the Federal Government bailed out 19 of the 27 states that were enmeshed in financial crisis, states are seeking another bailout. They have been hit by another cash crunch as a result of the prevailing economic realities, THISDAY has learnt.

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), have approached the presidency and the CBN for another bailout.

However, investigation reveals that the Lagos State government has refused to join the states seeking bailout. This is 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 are 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 are now seeking more concessions.

Apart from the ripple effect of the plummeting oil prices, which only last Thursday fell to a 12-year low and made a rebound by 12 per cent after suggestions of renewed talks on OPEC cut at the weekend, what compounded their problem is that most of the states are also fulfilling their obligations to the Irrevocable Standing Payment Order (ISPO) they have taken.

Osun State, which is said to be the worst hit of all the states, THISDAY learnt, is left monthly with a paltry N40 million after deductions have been made. This amount could hardly be used to run the basic day-to-day operation of state government let alone pay the workers’ salaries. The other states, THISDAY checks, are also in sorry state as they could not meet obligations.

They are now groaning in pains and are at a loss of to do in order to get out of the quagmire.

The Federal Government, in accordance to the decision of National Economic Council (NEC) in July last year offered of 19 out of the 27 states affected by cash crunch a relief package to pay backlog of their workers’ salaries.

The states included Ekiti, Nassarawa, Kwara, Kebbi, Zamfara, Osun, Niger, Bauchi, Gombe, Abia, Adamawa, Ondo. Others that enjoyed the facility were Imo, Ebonyi, Ogun, Plateau, , Sokoto, Edo and Oyo

Following the approval of the intervention fund, the CBN spokesman, Ibrahim Mu’azu, had clarified that the facility was made available with 20-year tenure except Ogun which had its own on a 10-year tenure.

Essentially, President Buhari endorsed a three-pronged relief for the distressed states. One of it was the intervention from the CBN in form of soft loans to the states for the purposes of paying backlog of salaries and the second one being the NLNG proceeds

The third part of the bailout is a debt relief programme to be proposed by the Debt Management Office ( DMO) which will help states restructure their commercial loans currently put at over N660 billion and extend the life span of such loans while reducing their debt-servicing expenditures.”

Already, workers have down tools in some states over unpaid salaries while several other states are currently contending with brewing labour crisis as the states are consistently unable to meet their obligations to their workforce. Projects initiated by states prior to the dip in revenue allocation have stagnated while governors are unable to fulfil their campaign promises.

However, analysts at Dunn Loren Merrifield, an investment banking outfit, has advised states to stop depending on allocations from the federation and look inward by having in place a strong internally generated revenue (IGR) mechanism. By so doing, the analysts pointed out, their finances won’t be subjected to the vagaries of crude oil prices and they will effectively meet expenditure and cater for the needs of people of their states.

“Most states in Nigeria are largely funded by allocations from the federation account as internally generated revenues (IGR) remain weak to meet expenditure needs. The impact of the global headwinds on Federal Government revenues began trickling down to the states evidenced by the inability to meet salary and pension obligations.

“From the foregoing, the urgent need for state governments to look inwards through an improvement in internally generated revenue can’t be overemphasised,” they said.

The DLM analysts believed, this could be achieved “through improved fiscal prudence, eliminations of revenue leakages and a reduction in the cost of governance.”

They posited that “the silver lining with this prevailing economic weakness presents an opportunity for states to seek other revenue generating options to improve their respective IGRs which in our opinion had not considered a priority due to Nigeria’s current revenue distribution mechanism.”

Recalling that, “an initiative was formulated by the National Planning Commission and the National Bureau of Statistics in 2013 which was aimed at producing a report which shows States’ Gross Domestic Product (SGDP) in a bid to encourage states to further improve on revenue generating mechanisms and aid healthy competition”, they said: “We are optimistic that this initiative if successfully implemented will increase the drive for states to boost income generating capacity which would further impact on overall national output. The country therefore needs to develop a structure that incentivises and supports states to generate revenues.”