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Bailout for states … Beyond Buhari’ s N400 b intervention

AFTER weeks of being on pins and needles, relief
finally came the way of some state governors
yesterday . The governors, hardest hit by cash crunch ,
have been fighting the battles of their lives for their
inability to pay workers ’ salaries .

The dwindling allocations from the Federation
Account due to tumbling oil prices at the international
market has worsened the situation for them , forcing
them to go cap - in - hand under the Nigerian
Governors ’ Forum ( NGF ) to President Muhammadu
Buhari for a bailout .

There were hopes yesterday that the distressed
states will breathe a sigh of relief , courtesy of
President Buhari, who approved a comprehensive
package to save the governors from the financial
mess .

The bailout will help the states to pay arrears of
workers ’ salaries after working out the modalities .

President Buhari endorsed a three - pronged relief that
will end the workers plight by ordering the sharing of
$ 2 . 1 billion (about N 413. 7 billion ) in fresh allocation
between the states and the federal government.

The money is to be sourced, with presidential
approval , from the recent Liquefied Natural Gas
( LNG ) proceeds remitted into the Federation Account .

Yesterday ’ s deft political maneuver came as a great
relief as getting such intervention from the immediate
past administration would have been difficult than
squeezing water out of the rock .

However , this presidential directive has its other side .

The federal government cannot be seen to be playing
the Father Christmas to state governments that have
refused to diversify their revenue sources and their
respective economic bases at a time of severe oil
price volatility , thus further depleting the national
treasury instead of shoring it up .

The move , by President Buhari , may encourage state
governments to be lazy and perpetually dependent on
allocation from the Federation Account to the
detriment of being creative with Internally Generated
Revenue ( IGR ) and harnessing the natural resources
in their territories and create jobs and more sources
of taxable income for the states.

Many states’ governments have over the years
shunned repeated appeals to diversify their revenue
sources and be less dependent on allocations from
the federation account.

It is believed that the withdrawing $2 . 1 billion from
the Federation Account , arguably from the Excess
Crude Account ( ECA), will leave that particular
account literally empty .

The other leg of the bailout is a directive to the
Central Bank of Nigeria ( CBN) to come up with a
“ packaged special intervention fund that will offer
financing to the states, ranging from between N 250
billion to N 300 billion .

It is in a form of soft loans that can be accessed by
the states for the purposes of paying backlog of

“ The CBN will also make available the special
intervention fund to states and then negotiate the
terms with individual states, ” the directive stated .

The CBN has several intervention funds applicable to
different segments of the economy . Most , if not all ,
are designed as soft loans with single digit interest
rates .

Besides government guarantee , the CBN also guides
beneficiaries of the facilities on how best to apply the
fund so as to make the repayment stressful .

The apex bank , as government ’ s bankers, may
demand to know how benefiting states will pay back
the soft loans if such facilities will be used to pay
salary arrears .

So , the question the CBN will have to answer is how it
hopes to recoup the loans from the states , in the
event that they find it difficult to pay . Will the CBN
have the courage like the Nigerian National Petroleum
Corporation (NNPC ) to withhold partial accruals to
these states from the Federation Account?

The third and final leg of the bailout as directed by
President Buhari is a debt relief programme to be
“ proposed by the Debt Management Office ( DMO)
which will help states restructure their commercial
loans currently put at over N 660 billion and extend
the life span of such loans while reducing their debt -
servicing expenditures . ”

By extending the commercial loans of the states, the
third option will make available more funds to the
states , which otherwise would have been deducted
from source by the banks .

Under the new arrangement , the Federal Government
will use its influence to guarantee the elongation of
the loans for the benefit of the states.

Getting the DMO to help the states secure an
extension of their commercial loans from Deposit
Money Banks (DMBs ) may be easy . But , postponing
the commencement date for repaying state loans will
not wipe off the loans .

The DMBs will factor this into their books with the
attendant interests that will accrue to them .

Interestingly , since the Federal Government will be
guaranteeing these loans , the nation ’ s debt profile
will also take a significant leap , especially the
domestic component of the debt profile. This in turn
might increase the country ’ s debt to Gross Domestic
Product (GDP ) ratio out of its current comfort zone .

With commercial banks and the CBN pulling the
debtor states out from the tight corner , the
governments may soon buckle in the knees and run
cap - in - hand to the president for another round of
bailout .

The intervention was considered at last week’ s
National Economic Council (NEC ) meeting and
designed specifically for workers. This knee - jerk
reaction to the problems of the states looks like a
workable short - term plan but with dire long- term
consequences for the states that refuse to be
proactive in their IGR drive and the exploration of the
natural resources in their domains to insulate them
from future doom .

President Buhari’ s intervention is to alleviate the
sufferings of workers , some of whom have not been
paid for over ten months .

Special Adviser to the President on Media and
Publicity Femi Adesina confirmed the development.
He said : “ A special package was on the way for the
workers because the President is deeply concerned
about the plight of the workers who have been unpaid
for many months . ”

In his speech while inaugurating the NEC penultimate
Monday , President Buhari asked the Council , which is
a constitutional advisory body to the president and
comprising of state governors, the CBN and the
Accountant- General of the Federation, to , “ as a
matter of priority, consider how to liquidate the
unpaid salaries of workers across the country , a
situation he observed has brought untold hardship to
the workers . ”

The packages that have now been approved by
President Buhari is expected to go into effect
immediately as the President is said to have directed
that the release of the funds should be made as soon
as possible to assuage the plight of thousands of
workers on federal and state governments’ payroll .

At least 12 of the 36 states of the federation were
having challenges paying their workers’ salaries. The
debts were, approximated at more than N 110 billion .

The figure represents the salaries being owed by
governments of 10 of the states, including : Osun ,
Rivers , Oyo, Ekiti , Kwara , Kogi, Ondo , Plateau , Benue
and Bauchi. In the past five years , state governments
have been at loggerheads with the Federal
Government over the sharing of savings in the ECA.

There have been claims and counter claims over the
management and eventual sharing of proceeds of the
ECA by the former administration of Dr . Goodluck
Jonathan administration .

There are also federal government employees , whose
salaries have been unpaid for months . Such workers
will also partake in the presidential intervention.
Experts say the bailout will boost the purchasing
power of a good percentage of the local consumers
and thereby reflate the economy .

While the Buhari administration might continue to
guarantee and bailout erring state governments,
another government might take a different view and
leave the states to their creativities as allowed by
law .

In its recently released report on poverty findings,
ActionAid alleged that “ state governments, Ministries ,
Departments and Agencies (MDAs ) and local
governments have mismanaged public funds , while
money laundering has become a major means by
which the country ’ s wealth is siphoned and stashed
abroad . ”

The report, also noted that “ the private sector is
involved in corruption through kick - back , under -
declaration of profits and non- performance , while
operations in the oil and extractive industry was still
opaque and prone to corruption. ”

Some of the recommendations made by the report
included the creation of “ special programmes for
areas with high incidence of poverty through
geographical targeting; social protection policy ;
strengthening of state - citizen relations ; making
corruption a development issue ; compliance with the
FoI Act by all MDAs ; autonomy for all anti- corruption
agencies , (ACAs , ) to enable them discharge their
mandate in fighting corruption ; public reward system ;
and increased support and commitment to NEITI to
ensure accountability in the extractive industry . ”

The states must , however , not see the bailout as a
free meal . It is a loan , no matter how soft, they have
to repay. They must also learn from the pitfalls of the
past by being prudent in the application of resources
at their disposal .

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Posted By bobricky On 11:28 Tue, 07 Jul 2015

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