States’ Growing Appetite For Bailouts | Independent Newspapers Limited
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States’ Growing Appetite For Bailouts

Posted: Feb 25, 2016 at 7:15 am   /   by   /   comments (0)

Recent reports that State governors in the country are seeking another round of bailout from the Federal government are worrisome. Recall that President Muhammadu Buhari’s administration announced a bailout to the tune of about $3 billion six weeks after being sworn in to enable several struggling States pay a backlog of workers’ salaries.  Coming barely one year after the previous one, it is unfortunate that the proposed second bailout is reportedly still for the same reason. We find this situation where the State governments keep going cap in hand to the Federal government each time they have problems with their finances regrettable.

Although this is coming on the heels of falling oil prices at the international market that have culminated in dwindling monthly allocations to the states, we still see the emerging fad among the governors as one that must be immediately handled with utmost caution, even when the States  find themselves in a situation where they could no longer meet up with their financial obligations.. At the moment, most of the State governors have made it clear that they could no longer pay the N18, 000 minimum wages. Having foreseen strong indications that they may encounter funding crises for their budgets before the end of 2016, the State governors in a meeting in November last year on the auspices of the Nigerian Governors Forum (NGF), expressed concern over the deteriorating state of the economy and resolved to take their case to the Federal government through the National Economic Council (NEC) to fashion a way out of their financial situation.

However, the question on the lips of Nigerians is whether or not the fresh bailout being sought by the governors for the States is needful at this point in time. Even if it is, are there measures in place to end this evolving financial management trajectory in the States considering that the practice looks every inch unsustainable. Besides, there are concerns that, perhaps, the previous bailout funds were not judiciously utilized and accounted for.

Moreover, it is instructive that huge debt burdens have been and would be left to encumber the administrations ahead, as the mantra of bailouts amounts to mortgaging the future of the states.  Available information from the Debt Management Office (DMO) website reveals that in the previous bailout, a total of 23 States had debts of N575.516 billion from 15 banks restructured to Federal government bonds issued on July 18, 2014 and maturing on July 18, 2034 and had a transaction yield of 14.83 percent. Again, figures from the National Bureau of Statistics (NBS) show that at the end of December 2014, States in Nigeria had outstanding debt profile of about N1.6 trillion. By the end of 2015, it rose to N1.7 trillion with Lagos state having the lion share of 35.8 per cent, Kaduna and Edo states trailed with 6.7 per cent and 5.0 per cent respectively.

We believe it is time to halt this unwholesome and insidious culture of bailouts and indiscriminate borrowing by the State governments unless when it is absolutely necessary. Governors must begin to look inward and get a lot more creative in revenue generation. More than ever before, they need to engage in some form of economic diversification of resources in the face of present economic and financial downturn. Many Nigerians have asked what would have happened if no money came from oil revenue. In fact, it is essential that the States make a paradigm shift from dependence on federal allocation for the funding of their various budgets in the face of the prevailing economic realities.

The truth is that the IGR figures of many States are not encouraging at all. The reason is that the monthly federal allocation has made them lazy. It is unfortunate that over the years, the IGR of most states has consistently fallen short of projections in their annual budgets. This has been attributed to the lack of capacity of these states in expanding and generating IGR. It is important for them to understand that if their capacity in generating IGR is not changed, it implies that another bailout is imminent in the future.

This is why we urge that tax issues must be taken more seriously as it is crucial that they expand their tax net. Measures must be put in place to check tax evasion. They must ensure that companies do not default in the payment and remittance of income tax deductions. Beyond this, it will do the States a world of good if they cut down on the flamboyant lifestyle of government officials.  They must review downward their personal and other related emoluments to reflect the prevailing economic realities as has been witnessed in some states.  More importantly, they must consider the adoption of the Federal government’s Treasury Single Account (TSA) as a way of effective monitoring of revenues accruing to the States as part of measures to plug leakages in the system.

For these to happen, we must also stress that it requires a high level of sincerity of purpose, sense of patriotism and provision of a robust leadership that would engender the ever needed financial independence in the States.