There’s a state of high anxiety across the 36 states of the federation and the Federal Capital Territory as the Federation Account continues to fall. It feeds on what lies ahead, beginning next month. Though the present fret over the gloomy outlook of the states predates the outbreak of the Coronavirus (COVID-19) pandemic, the scale of the looming financial crisis, which has been exacerbated by the deadly virus that has upended lifestyles and global economy may be such that most of the states in the country will be walking a tightrope fiscally in order to survive.
These are the facts to worry about: The three tiers of government – the Federal Government, the states and the local government councils- have lost massive projected revenue which will definitely affect their plans for this financial year, and even beyond.
According to figures released recently by the Minister of Finance, Budget and National Planning Mrs Zainab Ahmed, many states may be unable to meet their critical obligations, including payment of workers’ salaries. This is as a result of huge reductions in their expected revenue inflows from the Federation Account. For instance, the states expect to share about N3.3 trillion this year. Instead, that may come to them may not be more than N2trillion.This represents a massive shortfall of N1.3 trn.
Also, the local government councils, which were projected to share N2.5trn ,may not get more than N1.5trn from the Federation Account. In the same vein, the Federal Government’s share, which should have been close to N5trn, may not be more than N2.4trn, representing about 50 percent of the expected accruals. The cut is in projection revenues expected from the oil market, Customs duties, and the Value Added Tax (VAT). According to the Finance Minister, the projected overall inflow into the Federation Account in 2020 is N8.6trn. But so far, almost six months into the year, what is expected is N3.3trn. In the same way, Custom’s projected revenue is not looking up as expected.
If you are in doubt about the gloomy outlook for the states, hear the Finance Minister’s prediction: “We expect that from about June, the States might begin to feel the effects of low revenue coming from oil and, therefore, might be having challenges in meeting up with obligations, especially the payment of salaries”. Perhaps the effects are already coming earlier than she projected. Last week, the Ministry of Finance, Budget and National Planning released the figure of N606 billion as share for the three tiers of government for the month of April. The amount is N174 bn lower than the N780.92bn shared in March.
A communique issued by the Federation Accounts Allocation Committee (FAAC) at the end of its virtual meeting held last Thursday, indicated that the Gross revenue available from the VAT for April was N94.495bn as against the N120.268bn distributed in the preceding month of March, a decrease of N25.772bn. This is what each tier of government received: the Federal Government, N13.182bn, the States, N43.941bn, Local councils, N30.758bn. The distributed Statutory Revenue of N370.41bn received for the month was lower than the N597.67bn received for the previous month by N227.265bn. What does all of this tell you? Simple: A storm clouds ahead.
How can the states get out of ‘jail’, walk out of this tightrope? Well, this is Federal Government’s own bailout plan for them , after which each state must take its own destiny in its own hands. According to the Minister of Finance, government plans to give the states $1bn as loans from the $2.5 billion facility from the World Bank. These loans are not gifts. They must be repaid. In addition, President Buhari has approved $150 million from the Sovereign Wealth Fund in support of the FAAC. The Federal government also says it’s considering the option of suspending deductions in respect of the budget support funding which was provided to the States as a way of easing their financial burden.
I think the Buhari administration has pampered the states long enough. Many of the state governors are financially reckless, running their states as private estates. Why, for instance, will a state governor appoint over 180 aides, as some of them have done? Why, will a governor appropriate for himself over N6bn a year as “Security Vote” , when the state cannot generate half of that amount as IGR. Poor governance will also catch up with some people. Imagine the stunning confession of ex-governor of Abia state T. A. Orji, now a senator, representing Abia Central, of how he squandered the state’s money on so-called security vote. Under interrogation by the Economic and Financial Crimes Commission (EFCC), he disclosed that he collected a hefty N38.8billion as security vote during his eight years in office. Of this amount, he gave N5.76bn to members of the state House of Assembly, at N60 million per month, N75million monthly to “security informants” in 15 of the 17 local government areas of the state.
Others beneficiaries of the money were traditional rulers, the police, military and paramilitary personnel. Doesn’t this deserve a life imprisonment? The Judiciary will determine when the antigraft agency is done with its investigation. Senator T.A Orji’s travails may just be unfolding, but even now, it’s full of lessons in power. As former President Goodluck Jonathan said in his memoir: “MY TRANSITION HOURS” (on page 173): “If you embark on digging a hole for your enemy, you better make it shallow, becsuse you might end up in the hole yourself”. Sound advice, isn’t it? T.A Orji, his family members and his supporters know what I’m talking about.
Are you surprised when many states are in deep financial crisis? A recent data from the Debt Management Office (DMO) showed that the 36 states of the federation have accumulated a domestic debt of over N5trn as at end of March 2019, with the South-West geopolitical zone topping the table with domestic debt exposure of N1.04trn, followed by South-South, North-Central, North-West, North-East and South-East, in that order. Last year, the Economic Confidential, a reputable financial/economic magazine, released its its Annual States Viability Index for 2018. It showed that at least 17 states in the country are currently insolvent. Their Internally Generated Revenue (IGR) in the year under review were far below 10 percent of their receipts from the Federation Account Allocations in the same year.
The index computed by the report also revealed that without the monthly disbursement from FAAC, many of the states would be unviable, and perhaps may not survive. The IGRs are generated mainly through Pay As You Earn (PAYE), direct assessment, road taxes and revenues from Ministries, Departments and Agencies (MDAs) of government. In 2018, the IGR of the 36 states was N1.1trn. But the IGR of Lagos state alone was N382bn, more than that of over 24 states put together. Only three states from the North – Kano, Kaduna and Kwara states – have IGR above 20 percent of their respective allocations from the Federation Account. Only seven states in the South have IGR exceeding 20 percent of their funds from the Federation Account. Also, data from the Nigeria Extractive Industries Transparency Initiative (NEITI) show that 28 states might not be able to fund their 2020 budgets.