Do we need unviable 32 states?
The measure of the viability of the states is hinged on the ability to take care of their recurrent expenditure without reliance on funds allocation from the Federation Account. In other words, for the purpose of the report, a state government in Nigeria should be considered unviable if, without monthly allocation of funds from the Federation Account, it cannot finance her recurrent expenditures (such as salaries and wages, security, waste management, asset maintenance, among many others). This signifies that the internally generated revenue of such a state government is inadequate to cover the recurrent expenditures. Meaning that, either the state is not generating enough revenue to fund her expenses or her recurring expenses are too high to be fully financed by the revenue independently generated by the state.
Situations such as these have obvious multiple negative implications for any state in the convoluted federation. One of the critical implications is that, should the federal allocation of funds be adversely affected by the vagaries in the oil industry and market, the state cannot perform her basic functions, except she resorts to borrowing. And such borrowing is likely to be at the high-interest rate and charges as well as other inconvenient terms of repayment of the borrowed funds. In a sense, a state that is incapable of financing her recurrent expenses is broke, unviable and cannot contemplate making any investments. Any thoughts about development and growth will be out of her radar, of course, with consequences for human, institutional and infrastructural developments.
What the report of BudgIT says, in effect, is that 32 (or about 89%) of the 36 states in Nigeria have gone beyond being stressed; they have become liabilities not just unto themselves but also to the people. They are simply unviable, bankrupt, unstable and therefore unsustainable. With about 89% of all the states incapable of funding their monthly or annual recurrent expenditures, there are genuine grounds for worry for the federation.
Is it therefore, any wonder that many of the states have been incapable and unable to pay salaries of their employees for many months, sometimes, years? Is it any wonder that the country, as a whole, has been witnessing increasing rates of unacceptable activities of a growing number of the citizens especially in the forms of armed robbery, human trafficking, hostage-taking and other forms of brigandage? Is it any surprise that rather than evidences of growth and development sprouting across the country, what one sees are deterioration and decay of existing infrastructure with little or no signs of new ones?
Unfortunately, most of the expenses by state governments in Nigeria are either unnecessary or over-bloated. Indeed, in some states, expenditure budgets are usually significantly higher than revenues. In some others, budgetary provisions for investment purposes are never brought to reality.
If the federating states cannot fund their expenses, something is fundamentally and seriously wrong. Is it that they have no means of generating revenue internally or they lack the ideas and strategies for revenue generation? It is certain that the first cannot be the challenge especially given the abundance of human and material endowments in various states. The truth is that the states have been unable to focus on the second, that is, idea and strategies for making money. If they had done so without positive outcome, that would have been a surprise as there is no part of this country that is not endowed with viable sources of income. It will only be governance laziness – in body, soul and spirit- that will cause any state in this blessed Nigeria to throw her hands up in the air and exclaim her helplessness in meeting her recurrent financial needs without borrowing. It is such helplessness in meeting recurrent expenditure and the need to keep a tight grip over the states rather than ensure fiscal federalism that, the Federal Government keeps serving as the Godfather by continuously bailing out bankrupt states.
But, the pains of the bailouts are beginning to get into the bone marrows of the unviable states. This can be appreciated from states’ two-time rejection of the repayment in the installment of the amount (N614 billion) they borrowed from the Federal Government to settle salary backlog. According to reports, proposed monthly installment amount of N252 million and N162 million, respectively were said to have been rejected by the debtor states. The proposed tenor of 20 and 30 years, respectively for full repayment of the bailout, was also rejected by the states.
While these rejections have been made public, no one has informed the public how much the states proposed to pay monthly and the number of years (tenor in years) it will take them to liquidate the amount borrowed. It is even noteworthy that the so-called rejections by the states seem to have taken place after the commencement of repayment had become due and not at the point the bailout was negotiated. In normal situations, all the issues the states now argue about or reject, ought to have been negotiated and agreed upfront before the release of the bailout funds. Current happenings strongly suggest, if not evidence, that the way and manner the bailout was conceived and executed are true, questionable.
In any case, at least two pertinent questions are germane here: Must all the states repay the same monthly installment amount and must the tenor for repayment be the same for all the states, irrespective of their peculiar circumstances? Furthermore, can’t each state separately negotiate her repayment terms of the indebtedness?
Notwithstanding, it is important to recognise that if the states had their own funds, they would not have gone borrowing; but now they have started sorrowing. This is one germane and enough reason the states must strive to develop their own independent sources of revenue. After all, it is not all the states that fell for the bailout. Lagos State, for example, according to reports, did not go for it. The question is why? The answer is that the state had enough internally generated funds to survive, especially for recurrent expenditure.
It is obvious that reliance on bailouts cannot and will never guarantee the viability, sustainability, growth, and development of any state in Nigeria. Today’s source of borrowing can tomorrow be negatively affected to be able to continue to be of such service. If there is no other reason to believe this position, a genuine consideration of the precarious and uncertain state of the oil industry and market, where the Federal Government depends on for its financial resources, should suffice.
Thus, the states need to be fiscally responsible. They cannot continue to borrow to cover recurrent expenditures. That will lead to their deaths eventually. They need to sit back, create, develop and grow their internal revenue streams that will meet and even surpass their expenses on a monthly and annual basis. They need to restructure their bureaucracies to reflect their ability to survive.
Finally, the parlous state of a majority of states (being unable to fund their activities) calls attention again to the need for an honest political review of the current state structure in the country. This is the most important reason for true federalism. It is the only panacea for not just financial viability but more important, general economic and human development, growth and sustainability of the federation. Unless the states are made to cut their coats according to their cloths, unless the states can be made to live within the means in the states, Nigeria will continue to live on the illusion of bailouts to the states.
All told, the fact that only four states are viable out of 36 reminds us of the glorious past too when there was a country of four regions that were not only viable but also competitive. One of the regions then was once reported as lending the federal authorities money – sadly before 1966 when the state structure built of true federalism was dismantled by military fiat with Decree No. 34. That obnoxious decree set the tone for the unviable 32 states of the federation. As this newspaper has always reiterated, that is why the power and political elite in the country should renew their minds and reach a consensus about the restoration of federalism sooner than later.
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