Daily, indications emerge of how states and local governments are facing grim financial crises arising from steadily dwindling national income derived predominantly from the sale of crude oil. The situation, observers say, will continue to get worse until something drastic happens.
Since last year, there have been rumblings at the monthly Federal Revenue Accounts Allocation Committee (FRAAC) where the commissioners of finance from the 36 states and their federal counterpart meet monthly to review national earning chiefly from crude oil and share the proceeds to the federating units according to the statutory revenue allocation formula which gives the bulk of the revenue to the monolithic FG leaving the states and local governments (LG) with less.
Recently, states have complained that revenue accruing to the federation account has been dwindling drastically and fluctuating with the consequence that the states and LG’s got much less.
When the going was good, the FRAAC, for instance, in July 2013 shared N1.014 trillion among the federating units. But by October the same year, the income accruing had plummeted to N568.413 billion, the lowest for many months. Last November, the FG, states and LGs received an uncomfortable N675.650 billion between them which again nosedived by a miserable 581.14 billion in December, 2013. In January 2014, only N629.12 was available for sharing to the three tiers of government.
Nigeria not broke
Amid all these with local and foreign observers fearing that the country may be experiencing intense cash crunch owing to the dwindling fortune of its oil in the international market, the Minister of Finance, Dr Ngozi Okonjo-Iweala, said the economy is growing positively in spite of the reduction of oil price in the international market. Okonjo-Iweala insisted the nation was not broke as being speculated in the media.
She said, “If you look back two years ago, that title `is Nigeria broke’ was written in a newspaper article, it is like people are trying to force Nigeria into brokerage. I think since two years, we have managed to keep things going, let me explain these; Nigeria is a country that depends on a stream of income.
“That income is being able to collect taxes from companies, individuals and our income is also based on selling a product and that product you take to market and you take whatever price a buyer is willing to pay.”
In another breadth, she indicated that all may not be well with the finances of the country when she said, “government is doing everything within its power to ensure economic stability in the country. Presently, government had been budgeting below the existing oil price to help build buffers in case of uncertainty.
“We are operating an economy that depends on a product that fluctuates with oil price and we don’t have the right to control the price. Just like you have in your own household, when the quantity diminishes or the price drops, you remember in 2007 to 2008, the price of oil dropped from $140 to $38.
“At that time, nobody asked if the country was broke because we had saved up $22 billion in the Excess Crude Account and we were able to continue spending and to stablise the economy.”
Presently Nigeria is faced with fluctuations in quantity and price of oil, adding that it had affected the amount paid into government coffers. Does that mean that the country is broke?
“We still have resources that we depend on; we still have the ability to tax. Sometimes, things need to be a little tighter, easier and we just have to weather it and manage ourselves but that does not amount to the country being broke. If government was not able to pay salaries to people and continue to manage, then we can say that the country is broke but we have not gotten there yet,” she argued.
But the states are broke
But the argument of the minister appears to be at variance with the realities on ground in the states across the country. For most governors of these states, Okonjo-Iweala may be living in another country entirely given her explanation of what they called the biting financial realities on ground.
So bad is the situation now that those affected are no longer mute about it. Consequently, the airwave is agog with lamentations of how the states and local governments are so broke that unless something happens soonest, many of them have to close shop as a result of heavy indebtedness.
State governors belonging to the All Progressives Congress (APC) were the first to bring the gory situation to public space when they accused the federal government of secretly funding their counterparts who are members of the Peoples Democratic Party (PDP), as allocation to states continued to dwindle.
The governors, at a meeting in Ilorin Kwara State, under the aegis of the Progressive Governors Forum (PGF) decided to meet President Goodluck Jonathan over the issue.
Present at the meeting were Governor Rochas Okorocha of Imo State; Abiola Ajimobi (Oyo), Chibuike Amaechi (Rivers), Rauf Aregbesola (Osun), Ibrahim Geidam (Yobe), Rabiu Kwankwaso (Kano), Kashim Shettima (Borno) and Abdulfatah Ahmed (Kwara).
“This issue has become a very serious concern to us as governors and we felt that issues that affect the lives of our people must never be politicised. We refuse to accept the fact that this nation is broke and thank God that the federal government has confirmed that the nation is not broke. If the nation is not broke, what is due to states should be given to states,” said Okorocha, while briefing newsmen at the end of the session.
“This idea of cutting what should go to states does not in any way promote democracy and democratic dividends. And so, we as Progressive Governors, call on the federal government to look into the issue of dwindling resources and convince us why the states should not get what is due to them. We demand to have a meeting with the President on this issue of dwindling resources as quickly as possible,” he stressed.
Adding a voice from the ruling party to the ‘we are broke’ chorus, Governor Seriake Dickson who is from President Jonathan’s own Bayelsa State, said there is no state in the country that is not experiencing financial difficulty as we speak because states now receive about 40% less of their original allocation from the centre .
“We are also very concerned. There is no state government in Nigeria that is not concerned: Very sharp decline in state revenues. We are actually receiving about 40% less. As I speak, there are so many state governments that have not been able to pay the salary of their civil servants,” he quipped.
Another PDP governor, Dr. Muazu Babangida Aliyu of Niger State, during the week, decried the financial crises facing the states saying that if urgent steps are not taken the states may collapse in the next three months.
He posited that the country may not be broke but experts must do something about the economy and the inability of the states to meet up with their obligations.
Shedding more light on the precarious situation, he and his colleagues have raised the alarm over the dwindling and delayed federal allocation to states by the federal government, saying that the states might not be able to pay the October salary to workers and carry out other financial obligations unless the situation was promptly addressed.
He confirmed that the allocation to the state had been reduced by almost 40 per cent, adding that even the allocations were not being released as at when due owing to what the federal government described as a fall in the price of crude oil.
“Truth be told, the financial position of Oyo State as of now is not too good. But this is not peculiar to Oyo State as other states in the federation are also experiencing serious cash crunch.
“You will recall that at the APC forum held in Kwara State recently, we (governors) raised alarm over the dwindling federal allocation to states. Even some PDP governors have also cried out over their inability to meeting up with their financial obligations.
“Unless the federal government addresses this situation with all the seriousness it deserves, most states may not be able to pay workers’ salaries let alone carry out other development programmes,” he said.
Governor Ajimobi explained that at the inception of his administration, the federal allocation stood at about N4.2 billion while the salary and wages was N2.9 billion, adding that the statutory allocation had of recent been reduced to about N3.2 billion while the salary and wages had risen to about N5 billion.
As a result, he said the state had been on monthly deficit of about N1.8 billion, even as appealed to the federal government to do something urgently to save the states from grinding to a halt.
Painting a more gory picture of the situation, another PDP governor, Gabriel Suswam of Benue State, says if the economic crisis in the country continues unabated, many state governments may shut down next year.
“If the crisis continues, I’m sure so many states will be grounded next year. The month of October is an example of the reality on ground. The wage bill of state workers stands at over N3 billion while the October allocation was N2.7 billion,” so he asked; “where do we make up the difference?” through his media aide, James Uloko.
He said the non-payment of salary was the situation in several states. He therefore called for a drastic measure to be taken to save the current situation, and urged the workers to bear with the state.
It was a frank Governor Amaechi that declared that there is no end in sight yet to the increasing delay in the payment of workers’ salaries in the state, attributing this to the dwindling federal allocations to the state.
The governor, while decrying the consistent dwindling of the allocations accruing to the state from N25 billion to N12 billion, said it was also a factor slowing down the pace of some ongoing projects embarked upon by his administration.
“The situation we find ourselves now is really critical. We have started owing salaries of workers and nobody knows when this will end. Rivers people should know that Rivers State government now receives N12 billion instead of the usual N25 billion as monthly allocation.
“This has grossly affected our projects and work has stopped in some ongoing projects in the state. I am still looking for funds to pay some of the contractors and salaries. Things are no longer the same. Things are getting worse. I am not the problem, it is from the federal government,” he said.
Worried experts
The Governors are not the only ones worrying their heads off over the sliding profile of the nation’s revenue base. The situation has irked economic experts too. They said the development portends far-reaching implications for the economy.
The Managing Director and Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane and Chief Executive Officer of Economic Associates, Ayo Teriba, at the Lagos Business School Alumni Association conference, were unanimous in their assessment of the economic distortions already in the system and more, if left unchecked.
Rewane, in a panel discussion on the state of the economy and 2015 outlook, said that at present, governments are now concerned with how to cover the revenue shortfalls both at the federal and the state levels.
He contended that while 12 states have obtained approvals for borrowings in the name of projects’ completion and the federal government’s budget remained largely on expenditure side, what adjustments are needed fiscally to balance the issues?
According to him, the economy’s fiscal adjustments in terms of borrowing must be accompanied with the resolution that it must be for investment purposes, not for consumptions.
“That the state governments must realize that if one is going for governorship position and the cost of the race is N11 million, with a probability of winning after staking that much, it means one should review the expectation of the revenue to the state given the falling oil price. Politicians should review now the stake in politics in relation to the returns they expect when they are finally there.
“We have announced increased taxation on campaign and all the likes, but the real issue is not the tariff, rather if the price of petrol is N97 per litre when the price of crude oil was $100 and above, what is the price of petrol per litre now that the crude oil is in $70s?
“Should it still be N97 or less? If it is still N97, who benefits from the subsidy? Total subsidy is being valued from N1.2 trillion and above, and assuming that the subsidy is no longer in force because of the fall in the crude oil prices, what happens to the N1.2 trillion subsidy fund earmarked? This is enough to cover the shortfall more than the tariff regime.
“Again, by how much are we going to bring down the benchmark price for crude oil and what are we going to save for? We must note that fiscal measures take long to manifest on people’s well being and the economy. So, I do not think that the fiscal measures now are enough to achieve the goals,” he said.
He expressed gratitude that the government acknowledged that all is not well by taking the measures in the first place, but reiterated that proper measures must be taken; otherwise it would amount to nothing at last.
However, the Chief Executive Officer of the Nigerian Stock Exchange, Oscar Onyema, admitted that beside the crude oil price issues, the market faces other challenges from the political side.
“The market, even all over the world, does not like uncertainty and it will surely react to any trace of it. For the 2015 outlook, it’ll be clear by March 2015, when the impacts of politics and fiscal policy may have played out and then the actual direction of the market could be projected,” he said.
He noted that the current development is a beginning of the good things to come as the economy, though concentrated on services during the rebasing exercise, is now more diversified and has 14 per cent record from oil and gas, while telecommunications opens another aspect of revenue for the system.
Teriba pointed out that there is disconnect among the acclaimed growth figures, growth projections, budget developments and fiscal contraction/austerity in the face of “ongoing domestic economic expansion.”
He noted that the country failed to produce ‘savings’ from years of oil-price benchmarking and inept in raising revenue from evident and widely acknowledged boom in non-oil activity.
According to him, statistics showed that of the N70 trillion non-oil Gross Domestic Product (GDP), N2.95 trillion was federally collected non-oil revenue, representing 3.7 per cent of GDP.
He acknowledged that aside from oil, Nigeria is still bigger than any other economy in Africa, as non-oil GDP is bigger than each of South Africa and that of Egypt’s GDP.
“Why should they each have more tax revenue than Nigeria? Why do we lay claim to becoming one of the 20 biggest economies soon when our budget remains stagnant year after year? We can effect needful immediate heavy investment in health, educational, security and defence capabilities now and be happier for it.”
Speaking exclusively to The Nation on the effects of the continued drop in revenue to the country’s account, a state commissioner of finance lamented that “some states are in serious arrears of salary because of the drop in revenue, states like Benue, Edo, Cross River are having problem paying their salaries.”
The commissioner of finance also disclosed that “Oyo State is in crisis and Lagos State is surviving because of its reserve, Ogun State has lost N1billion in July and August, losing this amount every month means there’s crisis in the land.”
People, the commissioner said, “are losing hope, it will slow down economy because governments are the largest employers of labour in the country right now, some federal ministries are owing or not paying their salaries as at when due.”
The finance commissioner then warned that “the federal government should either stop paying into the ECA and pay our debts first and meet their obligation or there will be crisis.”
The commissioner told The Nation that at one of the Federation Account Allocation Committee (FAAC) meeting in Abuja, the minister of state for finance, Ambassador Bashir Yuguda had pleaded with the state commissioners of finance for two weeks grace to bring the demand of the states for augmentation of monthly allocations to be shared to the attention of President Jonathan.
The finance commissioner said the state commissioners of finance agreed to give Yuguda the two-week grace he demanded because he was new to the job but that he suspects that the minister of state for finance may have sweet talked the commissioners by “using diplomatic sense.”
In the last two months when the country had experienced continued revenue shortfall, the state commissioners of finance said they had advised the federal government to jettison its argument that the 2014 budget is being implemented as passed but should make attempts to adjust the budget to meet current realities on ground.
The commissioner warned that federal government’s credibility was at stake as many states are battling to meet their basic obligations to their citizens because of the federal government’s rigidity to adjust the 2014 budget.
Borrowing as the last resort
State governments are rushing to the capital market to raise funds to meet their financial obligations.
The Securities and Exchange Commission (SEC) is processing requests from at least seven states to access long term funds from the capital market (bonds) to meet pressing financial obligations. Two of these states are Bauchi and Ebonyi.
Giving the sensitive nature of the requests, the SEC will not disclose the names of the states that have approached it to raise bonds from the capital market, but officials of the SEC are categorical in their stand that such bonds should not be used by the state governments to pay workers salaries.
According to the SEC officials who spoke to The Nation on sidelines of the just concluded Capital Market Committee Retreat in Abuja, for state governments to succeed in raising funds from the capital market they have “to come with bankable projects with prospects of generating revenue.”
Such bankable projects that will likely scale the SEC approval hurdle include infrastructure, real estate and such projects that can generate revenue for the states to pay back what they have borrowed from the capital market.
A source at the Debt Management Office (DMO) also confirmed that state governments were “making overtures to raise long term funds from the capital market but are not carrying the DMO along as required by law the figures were very bad as a result of the continued fall in revenue.”
The states are scrambling to raise these long term funds because of the persistent drop in their monthly revenue occasioned by the drop in global oil price and the decision of the Federation Account Allocation Committee (FAAC) not to augment further shortfalls in monthly allocations to the three tiers of government when it became apparent that there was a threat to the accruals in the foreign reserve and by extension, the Excess Crude Account from where augmentation was accessed.
At last month’s FAAC meeting, a finance commissioner told The Nation that, “we’re not ready to give the Minister of State for Finance, Ambassador Bashir Yuguda or the federal government the benefit of the doubt.” The state commissioners of finance the commissioner said “told the Minister of state for finance to go back and harmonise the figures or come and tell us if the nation’s economy is in danger.”
Due to the continued drop in revenue, some state governments had recently demanded that the federal government should stop making further payments into the Excess Crude Account (ECA).
According to financial analysts, eight state governments have been identified as unable to pay salaries, while about 12 have obtained approvals to raise their respective debt profile by way of borrowing.
In its annual National Debt Sustainability Analysis (DSA) released by the DMO last year, the total domestic debt of the 36 states and the Federal Capital Territory (FCT) reached N1.471 trillion last year. This is an increase of 19.34 per cent compared with the N1.233 trillion domestic debt figures the previous year.
The figure indicates an abuse of the opportunity that the bond market provides. A report exclusively show recently that only 16 states of the federation have raised bonds totalling N520 billion in the last six years without clear outlines on how the funds were used.
This is against the backdrop of massive unemployment and infrastructural deficit across the country, which the debts could have addressed.
Specifically, the 16 state governments were found to have raised the bonds without their citizens’ understanding of what the funds are meant for.
Filings by the state governments at the NSE showed that Kogi State’s N5 billion bond is the smallest so far while Lagos emerged the biggest debtor with a total of N187 billion issued so far.
Analysis of numbers obtained by The Nation showed that Osun State with internal generated revenue and federal allocation of less than N2 billion has so far raised N30 billion including the just concluded N11.4 billion sukuk.
Others include: Kwara N17 billion, Niger N15 billion, Kaduna N8.5 billion, Gombe N20 billion and Edo N25 billion.
Benue, Ebonyi, Ondo, Ekiti, Bayelsa, Imo and Delta states have also raised N13 billion, N16.5 billion, N27 billion, N25 billion N50 billion, N18.5 billion and N50 billion respectively.
Investigation also revealed that Oyo, Ekiti, Zamfara, Rivers and Adamawa states respectively have concluded arrangements to head to the stock market to have a taste of the binge.
The Nation findings also revealed that the states activities at the bond market have crowded out corporate, particularly the manufacturing sector thus inhibiting their ability to create value and employment.
This is just as the Securities and Exchange Commission says the Bauchi State Government has applied to the commission to raise N15bn through the issuance of bonds in the capital market.
SEC said in a notice of the application that the state planned to use the funds for the completion of its international airport, completion of a specialist hospital, the refinancing of bank loans and to process the issue.
Specifically, N5.848bn is expected to be used for the completion of the international airport; N2.030bn for the completion of the specialist hospital; N6.338bn for the refinancing of bank loans, while N1.148bn is set aside to cover the estimated cost of the issue.
The commission, which is empowered by the ISA to regulate and develop the capital market, said the publication of the details of the bond was in line with its goal of ensuring a fair and transparent market in public interest.
If Bauchi State’s application is approved by SEC it will join the growing list of states that have raised funds through the capital market in recent years.
Our correspondent had reported in May that from 2008 to 2013, 15 states raised N514.4bn through the issuance of bonds in the capital market.
Likewise, the Ebonyi State Government is planning to raise N9.34bn through the issuance of bonds for the execution of projects in the state, the Securities and Exchange Commission has said.
It is also instructive to write here that the Federal government and seven states in the country have sourced a total of N255.5 billion through bonds from the capital market between 2013 and this year to shore up their revenue bases and developmental needs. Of this amount, the federal government accounted for a total of N85 billion or 33%, while the balance went to the states.
No comments:
Post a Comment