Beyond the bailout of debtor-states

BailoutON Tuesday July 7, 2015 the Federal Government after due consultation with the Council of State announced some intervention measures to come to the aid of many states in the federation that surprisingly have not adequately prioritized the welfare of their workers by being delinquent with the payment of salaries; some of the states we were told have unconscionably not paid salary to their workers for upwards of eight months. What is even alarming is that some states that are beneficiaries of special allocations from the Federation Account that have lived large going by some large projects they have embarked upon and the lifestyle of their executive governors were inexplicably included amongst such delinquent states. Following this announcement considerable interest was stirred because of the unprecedented nature of this intervention particularly by the electronic and mass media. The undercurrent it would appear that underpinned this palpable concern was the uncertainty regarding the economic implications of this development.

My take regarding the concern about the economic implications of this development is to put in the front burner the urgent need for this country to come to the aid of so many of our compatriots that have been caught in this sorry pass. At the end of the day effective management of the economy is really about the welfare of its citizenry. And if we empathized, one must wonder how someone and his dependents must have survived such harrowing experience of non-payment of salary over several months! As should be expected, the inevitable controversy ensued whether this gesture by the Federal Government was really a bailout.

It might help us to put this discussion in context if we recollect the details of the package reeled out by the Federal Government on this occasion to better answer the question whether this intervention is a bailout or not. I recollect that I heard the Accountant General of the Federation, Ahmed Idris announce that the President had authorized the sharing of $ 1.7 billion from the Excess Crude Account amongst the package of relief. But apparently this had been reported in error, as there was an immediate follow-up message from the President’s media aides that this money was not part of what was to be shared. We must quickly add that it is well advised that the President is wary of drawing from this Account even if one must admit that it is for situations such as we now encounter that such funds were put aside for in the first place. But the recent controversy regarding what balance was left on this account by which administration and how surprisingly this balance had turned out as a measure of the prudence and probity which succeeding administrations in the country had brought to bear during their tenure would appear to caution some discretion. But I beg to differ as the balance on this Account in my opinion is largely circumstantial dependent on the prevalent developments in the economy at particular epochs and not necessarily a measure of the prudence and transparency, which the administration has brought to bear on governance.

There was the instruction to share the dividend paid to the Federation Account amounting to $ 2.1 billion by the Nigerian Liquefied Natural Gas (NLNG) Company; a Central Bank special intervention fund of between 250 and 300 billion Naira as soft loan to be made available to the states for the specific purpose of paying the backlog of workers’ salary and a debt relief programme to be put in place by the Debt Management Office to enable the states restructure their commercial loans estimated at N660 billion and extend the lifespan of such loans to provide some relief on the burden of debt servicing. It should be obvious to all that certainly there is a bailout/ relief; as these measures come on stream. Even in an instance where this relief package included some monies that should be statutorily shared; we should enquire whether the sharing could have been done with the urgency that we are now witnessing.

But what should really be of concern and what actually informed going into this discuss is to highlight the fact that what has just happened is an emergency measure aimed at ameliorating a festering situation of backlog of unpaid workers’ salaries occasioning untold hardship and which is not conducive for the demand of any form of productivity from civil servants. The received and shared wisdom, as we observed above, is that the state governments have been profligate and to a large extent irresponsible in the way and manner they have gone on borrowing spree for mostly projects of questionable relevance; and what is more, the impact of such expenditure had been undermined by corrupt practices as it is currently being made manifest by the revelation of sordid details of the activities of former governors now undergoing prosecution by the Economic and Financial Crimes Commission. But what we need to do is to embrace and enforce the content of the Fiscal Responsibility Act, 2007 which is an Act meant to ensure greater accountability, transparency and prudence in the management of the country’s resources. And it must be ensured that the state governments too launch their version of this Act with utmost urgency.

The Fiscal Responsibility Act mandates and instructs the governments of the federation regarding the procedure for the proper management of the nation’s resources through purposeful medium-term three-year rolling plans which it dubs the Medium Term Economic Framework (MTEF). This is to be followed with the articulation of a Fiscal Strategy Paper (FSP) detailing policies relating to taxation, recurrent (non-debt) expenditure, capital expenditure, borrowings and other liabilities, lending and investments. The annual budget which should be ready and submitted to the National Assembly for appropriation latest four months before the end of the financial year should take its bearing, as logically should be expected from the content of the MTEF & FSP.

It specifies the extent to which appropriations should go beyond the estimated revenue; not extending three per cent of estimated Gross Domestic Product (GDP). This Act recommends quarterly progress reports on budget implementation with a full blown half yearly report to be laid before the National Assembly. Probably, this requirement explains the presentation of budget implementation reports with much publicity to the organized private sector by the government in the past but which has since gone into oblivion.

This Act is also quite specific on how government should go about incurring debt obligations. It makes it clear that borrowing should be only for capital expenditure and may be human development and should preferably be of long gestation period and on concessionary terms. It admonishes that the level of national debt as a proportion of national income must be sustainable. An overall limit was to be determined for consolidated debts to be incurred by the federal, state and local governments. And a publication was supposed to be made on a quarterly basis indicating those governments that have exceeded their borrowing limits. It is therefore obvious that the Fiscal Responsibility Commission which hitherto was to be axed as per Oransaye report now has its work cut out for it and as we noted here, it is now a matter of compulsion for the sub-national governments if we must avoid a repeat of state governments being broke and not able to meet their basic obligations of payment of salaries to their workers.

•Dr. Chizea wrote from Abuja.

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