Government structures budget support for states on monthly basis
The newly scripted Fiscal Sustainability Plan (FSP) by the Federal Government for states will be disbursed to states in monthly tranches as opposed to full disbursement upfront as was the case in the bailout last year, The Guardian has learnt.
The Federal Government had last week, unveiled a plan that would provide financial relief to state governments, as the economic crisis that worsened states’ ability to execute their respective budgets becomes gloomier with crude oil production short-ins.
In the new arrangement, disbursements each month are now fully conditional on achieving the fiscal reform milestones set out in the FSP within the agreed timelines, as independent audit firms will be engaged for monitoring and evaluation of respective states’ performance against the agreed benchmark.
According to a source from the Ministry of Finance, state governments now have a common standard for which they must operate in terms of financial management, even as some states are already at par with the listed standards, while others still have work to do to reach the requisite standards.
The governors had earlier agreed to this reform programme, which is a condition for any future funding support, which is similar to reforms being pursued at Federal Government level to ensure that the entire public financial management system is aligned and improved.
It is targeted at helping state governments’ finances to become robust, less vulnerable to shocks and less dependent on Federal Accounts Allocation Committee as a source of funding.
Meanwhile, the planned FSP had facility had a 22-point reform agenda encompassing the requirement to publish audited financial statements and budgets, biometric and Bank Verification Number payroll review exercises to sanitise payroll costs, as well as limits on recurrent expenditure levels.
Perhaps, the recurrent expenditure limit options might include the speculated retrenchment of the workers from the civil service, as well as costs built around day-to-day activities, which have long been suspected as conduits for frittering public funds.
The Minister of Finance, Kemi Adeosun, said the FSP represents an important programme of reforms that will develop best practice financial management across all tiers of government and will improve transparency and accountability.
“We are determined to attain financial discipline across government and implementing the FSP at State level will ensure alignment. The focus on increasing revenue, which is not limited to conventional taxes, but rather encourages states to explore opportunities in areas such as Agriculture and Solid Minerals, is line with our diversification objectives.
“The targets for cost management and improved efficiency will deliver value for money and will yield long term savings. Overall we believe that the survival of State Governments is essential to the economic recovery of Nigeria, specifically their ability to meet salary obligations.”
Already, the definition of Internally Generated Revenue (IGR) has been widened beyond taxes since there is no significant private sector in many states, as state governments will therefore, key into Public-Private Partnership arrangements to exploit local endowments.
Each state will develop its own plan to attain the targets and compliance will be independently monitored and where there is failure to meet the targets, funding will cease.
“The Objective of the Plan is for enhanced transparency and accountability. To attain this, all states must publish their financial statements, budgets and the quarterly budget performances. State finances will no longer be shrouded in secrecy. Items like security vote, feeding, and travel will be visible.
“Target limits for recurrent to capital expenditure will be set. Payroll will be cleaned up by the elimination of ghost workers from the system. The Efficiency Unit, which has been set up to further cut cost, together with the setting up internal audit, will further enhance the objective of the exercise.
“Each state must be made less reliant on FAAC allocation. Targets need to be set for improved IGR. Current database of taxpayers will be shared with FIRS. A review of obsolete revenue laws and tariffs must be achieved to checkmate the ineffectiveness of the past guidelines.
“The Plan will strengthen Public Financial Management by setting up an asset and liability register. It should consider some privatisations, especially of state owned enterprises and the domestication of the Fiscal Responsibility Act.
“The plan is managing Debt in a sustainable manner, obtain and maintain credit rating, restrict borrowing from commercial banks, revised and fast track access to the capital markets which are cheaper and more transparent. The Central Bank can then publish guide rates for municipal loans to prevent excessive charging,” the source said.