“Looking from the fact that the funds from the Federation Account are not judiciously utilized by the states and they are not accountable to the people and the state legislature, our concern is that even if they get money from bonds and it is not invested, the state will be left with a huge debt burden , which will hurt in the long term.” Dr Usman Muttaka, Head of Department of Economics, Ahmadu Bello University, Zaria. “Osun’s federal allocation can’t pay electrical bill – Aregbesola. Punch, November 30, 2015; page 12.
Governor Aregbesola, went on to disclose to the people of the state, and Nigeria, that “Osun State received only N55m from the Federation Account for the month of September 2015.” For a state which had declared a monthly wage bill totaling N2.4 billion, this is not only frightening, it naturally leads to the question: from where will the state raise the funds to fulfill its obligations to its workers and others?
It is pertinent to point out that Gross Allocation from the Federal Government to Osun State was actually N2,461bn, but deductions for external debt (N59.6m), contractual obligation(ISPO) (N946m) and other deductions (N1.4bn), all amounting to N2.405bn, reduced the states “take home pay” to a mere N55m.
So it is not the Federal government that is responsible for Osun State’s predicament, it is the debts and contractual obligations entered into by the government which had got it into deep trouble. And, the problem can only get worse as allocations from Abuja decline.
The revenue allocation figures for September published in November reveal how states which are heavily indebted can easily become bankrupt. Most people don’t bother to read these publications which remain one of the best legacies of Dr Ngozi Okonjo-Iweala when she came in as Obasanjo’s Minister of Finance. Even those who take a glance conduct no deep analysis of the report. Let me use that report to illustrate how much information one can get from it.
Columns 7, 8 and 9 list deductions from source made from states allocations by the Central Bank. All three represent decisions made by state governments to which the CBN gives effect when calculating what each state receives as net revenue for each month. Column 7 represents external debt, column 8 lists contractual obligations (ISPO) and, 9 is for other deductions. When states enter into financial agreements and authorize the CBN to deduct as and when due, they cannot complain if later the deductions are killing them. What they sow is what they reap.
For September, the following facts emerge for selected states:
RIVERS N1.728bn
BAYELSA N2.252bn
LAGOS N2332bn
DELTA N2.355bn
OSUN N2.404bn
Source: Federal Ministry of Finance, Abuja.
As everybody knows Bayelsa, Delta and Rivers are oil producing states which receive the highest federal revenue allocation. Lagos meanwhile enjoys the highest Internally Generated Revenue, IGR, in the country. Those states can survive with deductions of N2bn per month. Can Osun survive with N2.404bn monthly deduction? Osun is not alone; but it presents the most puzzling case of a state with low revenue base competing with relatively rich states in debt acquisition.
Granted, the case had been made for innovative programmes on which these sums ahd been spent. But, the truth remains this: for states to avert bankruptcy, they must tailor their spending ambition to their ability to fund those programmes in the long term. How for instance will Osun State now continue to feed the kids with N55m received for October.
There is a lesson here for those who are still keen on getting the Federal government to provide “free” lunch and “free” money to the jobless. It is a sound idea which makes no economic senses. It will bankrupt us in the end.
States started defaulting on payment of salaries when the price of crude oil was over US$70 per barrel. The situation got worse when the crude price declined to under US$50. In 2016, Nigeria will be fortunate to receive US$35 per barrel for its crude. Can the states avoid bankruptcy? The way I see it, three are already bankrupt and anybody extending them credit or signing a contract with them is wasting his money.
You can bet on that.
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