Bailout Commendable But…

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Even though Nigerians had been led to believe that ‘all is well’ with the economy by the immediate past Minister of Finance and Coordinating Minister for the Economy, Mrs. Ngozi Okonjo-Iweala, whose refrain prior to the defeat of President Goodluck Jonathan on March 28, 2015, had been that ‘Nigeria is not broke’, she however found her voice on the advent of change by saying that the country had been hard pressed financially thus necessitating the Federal Government borrowing money to pay salaries in the early part of the year. Efforts by the Federal Government to relieve workers of the harsh connotations of non-payment of monthly entitlements notwithstanding, State Governments that were also hard hit by the cash crunch opted to abandon their workers to misery by owing them several months salaries and wages, with no hope of payment. A state like Kogi even went to the ridiculous extent of halving workers’ salaries thereby provoking a chain of industrial actions. Similarly, public spirited individuals have been making donations of food items to Osun State workers to cushion the effect of government’s inability to meet its obligation to its civil servants.

Two weeks ago, the Federal Government under President Muhammadu Buhari eventually came to the rescue of the State and Local Governments with a bailout relief package to assist the sub-national level authorities to meet some of their fiscal obligations especially the payments of accumulated workers’ salaries. At an inaugural National Economic Council (NEC) meeting recently, the 36 State Governors and the President had agreed on the necessity for the bailout which later came out under three-pronged relief measures.According to media reports, the relief measures approved by President Buhari to deal with the problem of unpaid workers’ salaries in many states include the sharing of $2.1 billion dividend paid into the Federation Account by the Nigeria Liquefied Natural Gas Company (NLNG), a Central Bank of Nigeria (CBN) special intervention fund that will offer financing to the states ranging from N250bn – N300bn as a soft loan for the purposes of paying backlog of salaries and a debt relief programme to be designed by the Debt Management Office (DMO) to further help States restructure their commercial loans that is currently put at over N660bn, thereby extending the lifespan of such loans while reducing their debt servicing expenditures. It is important to observe that the bailout is being delivered without external borrowing.

Before the approval of the bailout package, Nigeria appeared ‘broke’; everybody was looking for money, some governors could not pay salaries, even Mr. President complained of meeting a near empty treasury. What really went wrong? While not discounting the necessity of the hurriedly packaged bailout for the fiscally troubled SLGs by the FG, there is however, the need to understand what put the accounts of our sub-national level authorities in the red. How come almost all the state governments and local government councils could no longer meet their fiscal obligations despite the humongous amount of resources that have accrued to them over the years? According to an editorial by the Punch Newspaper, “no fewer than 24 states have failed to pay salaries, some with a backlog stretching up to 10 months.”

Even though some analysts had frowned at the unilateral announcement of the bailout package by the President without recourse to the National Assembly, I will leave that to the legal minds to ruminate over. For one, they never condemned it when the FG bailed out banks in the last dispensation and set up the Asset Management Corporation of Nigeria (AMCON) to absorb their toxic assets. Why should people praise policies that directly impact the rich and condemn those that benefit the poor? What is of immediate concern to me is the laudable and timely gesture of Mr. President in announcing the lifeline. This is because the workers who hitherto had become paupers by the inability of two-third of the states to pay salaries can now smile. By this gesture, Buhari has shown that as a people’s President he is ever ready to champion the cause of the poor. The bailout, if sincerely applied, would help to revive families whose mainstay had ebbed precariously as well as boost the economy of the states concerned.

Most of the explanations that have been provided for what is obviously a fiscal crisis at the sub-national levels of governance in the country revolve around dwindling oil revenue, poor management of federally collectible revenue, over reliance on allocation from the federation account, poor internally generated revenues (IGRs), weak tax base, corruption, over bloated bureaucracy, unsustainable borrowing, misplaced priorities by the states, white elephant projects, and huge election spending amongst others. On their part, most of the governors blamed their dire financial situation on the minimum wage increase of 2011, mismanagement of the excess crude account (ECA) by the ex-President Goodluck Jonathan’s administration, and the over 50 per cent fall in the price of our reference commodity – crude oil.

Senate President, Dr. Abubakar Bukola Saraki, recently underscored the contributions of corruption to the near comatose state of the economy in some states. Saraki, while playing host to the Chairman of the Independent Corrupt Practices and Other Related Offences Commission (ICPC) Mr. Ekpo Nta, aptly diagnosed the major cause of states’ insolvency with a vow that the 8th Senate would not tolerate the ugly menace. “The 8th Senate has a position of zero tolerance for corruption. We want to make it a priority. For us, we have realised that it is truly endangering the entire system. It is affecting our national development,” Saraki said, adding, “When a government gets to a stage that it cannot meet its obligations, then we know we are getting into a crisis and that crisis also requires drastic actions. If we are pussy-footing before, it is now time for us to be serious. The cost of corruption in our national life goes beyond financial cost.”

According to him, corruption has hampered the ability of some states to pay salaries and made funding of the education and health sectors not only poor but difficult. He expressed the readiness of the Senate to collaborate with the executive, led by Buhari in the fight against corruption. “For the 8th Senate, making the fight against corruption a priority is a must and we are committed to that. Our goal is to work with you to reduce significantly, the level of corruption in this country,” Saraki said.

Let me state that the State Governors cannot run away from accepting blame because they cannot be the jury and judge in their own case. Rather than allowing them to query and investigate how the ECA was managed under the outgone administration, the National Assembly (NASS) ought to conduct a joint public hearing to investigate the matter. Discarding fiscal buffers such as ECA and Sovereign Wealth Fund (SWF) cannot be in the nation’s medium and long term interest! Yes, the states have an immediate problem at hand, but discarding the national saving accounts should be out of it. The point that only the FG can manage the ECA should be reviewed to improve its governance and better management, but to demand that it be scrapped would not be in tandem with best practice in most extractive depended economies like ours. We cannot be held hostage by sharing all revenues as canvassed by the Governors’ Forum. The President needs to get alternative opinion from close watchers of our fiscal governance.

Undoubtedly, we are in a fiscal mess as our prized commodity is not getting enough patronage, coupled with over 400,000 barrels of crude being stolen daily. What should we do now as our political economy can no longer sustain us? At least since 2008, following the global financial meltdown, there have been several early warning signals indicating that Nigeria’s political economy, predicated largely on mono- culture oil rents collection, could face serious fiscal crisis in the event of sustained fall in the price of oil on the global scene and poor management of accrued revenue. Yet we all appeared to have ignored the signs as all tiers of government embarked on reckless fiscal practices against the spirit and letters of the Fiscal Responsibility Act (FRA). The FRA of 2007 provides for prudent management of the public resources, ensuring long term macro-economic stability and transparency in fiscal operations within a medium term fiscal policy framework, and the establishment of the Fiscal Responsibility Commission to ensure the promotion and enforcement of the nation’s economic objectives. The State Governments must take FRA seriously and domesticate it so that their actions and inactions can be better regulated and monitored.

The fiscal crisis has now offered us another opportunity to reexamine the nation’s peculiar fiscal federalism and the nature       of inter-governmental fiscal relations in the country. Why should Abuja retain the lion share compared with what all the SLGs get from the Federation Account?

Be that as it may, the bailout could inadvertently reward fiscal recklessness on the part of the state governors if no condition is attached. According to a report in the Nigerian Tribune, debt rescheduling and bail out led Greece to a state of insolvency and bankruptcy. If it could happen to a sovereign country, it can also happen to sub-national level authorities in the context of a federal state. Therefore, the financial aid should be seen as a palliative to grease the wheels of governances that had already ground to a halt in most states. The harsh forces of economics demand that government at all levels must learn how to live within their means. There must be auditing of all SGs accounts by independent auditors appointed by the FG with reports made public after the exercise. We must insist that FG orders immediate auditing of their accounts and guarantee increased transparency and accountability at this important sub national level of governance! On their part, States must open up their budget process to enable citizens and civil society monitor how they are spending our commonwealth. I believe my postulations are in tandem with the real change our people want to see!

Culled from: http://leadership.ng/columns/449991/bailout-commendable-but

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