By Abba Hamisu Sani
Africa-Press – Nigeria. Constitutionally Nigeria as a Federation each state has the financial Independence to operate as every Month Central government ,States and Local government share the generated revenue called federal allocations.
With these resources and what individual states acquired through internally generated revenue the 36 state governments pay workers salaries,pension and execute capital projects.
According to recent findings the 36 Nigerian States governments and Federal Capital Territory loan budden reached 61,774,074.90 dollars in the second quarter of this year (2023).Majority of these loan facilities is acquired from the commercial Banks.
This year’s six month financial statements of Access Bank ,Fidelity Bank ,and Zenith Bank shows that the states borrowed most from Access Bank 42 .97 billion loan (56,023,465.27 dollar). It was followed by Zenith Bank 1.78 billion Naira ( 2,320,730.00 dollars).
According to the 2023 financial statement of Access Bank ,the outstanding balance on the salary bail out fund was 58.84 billion Naira by June 30,2023 from 101.81 billion Naira in December 2022.
The amount of 58,842,651,795 represents the outstanding balance on the state salary bailout facilities granted to the bank by the Central Bank of Nigeria for onward disbursements to states for payments of salary of workers of the states.
“The facility has a tenor of 20 years with a 2 percent interest payable to the CBN.The Bank is under obligation to on-lend to the states at an all-in interest rate of nine per cent per annum. From this creditor ,the bank has nil undrawn balance as at 30 June” Access Bank noted
For Fidelity Bank, the H1 2023 financial statement showed that the outstanding balance on the salary bailout fund was 80.65 billion naira by June 30, 2023, from 82.07billion naira in December 2022.
The Bank also stated that the Federal Government of Nigeria Intervention fund is the Central Bank of Nigeria”s Bailout Fund of 80.65 billion Naira (31 December 2022.82.07 billion Naira).
This represents funds for states in the Federation that are having challenges in meeting up with their domestic obligation including payment of salaries. The loan was routed through the bank for on-lending to the states. The bailout fund is for a tenor of 20 years at 9 per cent per annum.
It added that the bailout fund is for a tenor of 20 years at 7 per cent per annum and availed for the same tenor at 9 per cent per annum until March 2020, the rate was reduced to 5 per cent for one year period due to Covid-19 pandemic to March 2021 after which it was extended to February 2023. Central Bank of Nigeria on August 17 2022 further reviewed the rates in response to economic outlook and approved the following order; All intervention facilities granted effective July 20, 2022 shall be at 9 per cent per annum while all existing intervention facilities granted prior to July 20, 2022 shall be at 9 per cent per annum effective September 1, 2022.
According to the H1 2023 financial statement of Zenith Bank, the outstanding balance on the salary bailout fund was 125.14billion naira by June 30, 2023, from 126.92 billion in December 2022.
“The Salary Bailout Scheme was approved by the Federal Government to assist state governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to banks nominated by beneficiary states at two per cent for on-lending to the beneficiary states at 9 per cent. The loans have a tenor of 20 years. Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured.” The Bank stated.
The data shows that the loans occurred despite the slight increase in the revenue allocation to states as 540 billion naira increased in the amount shared between the Federal Government, states, and Local Government Areas.
This was according to a communique issued by the Federation Account Allocation Committee between January to July for 2022 and 2023.
In 2022, a total of 4.96 trillion naira was shared for the first seven months of the year.
The total revenue shared by three tiers of governments in six months of 2023.
By 2023, a total of 5.5 trillion naira was shared for the first seven months of the year.
Reports also indicated that about 25 states in Nigeria suffered a drop in their internally generated revenue and battled cash crunch in the first quarter of 2023.
Data obtained from the budget implementation report of each state showed that 25 states earned 182.26 billion naira in the first quarter of 2023.
This was a shortfall of 3.07 per cent or 5.77 billion from the 188.03billion made in the 4th quarter in 2022, based on a quarter-by-quarter analysis.
The States without available data
Although there are 36 states in Nigeria, Rivers and Sokoto have no data for 1st quarter of 2023 yet; Akwa Ibom has no data for 1st quarter 2022, while Kwara, Edo, Kaduna, Lagos, Bauchi, Zamfara, Yobe, and Ogun have no data for the 4th quarter in 2022.
Therefore, the figure for Internally Generated Revenue was limited to 25 out of the 36 states in the country.
The findings showed that the 25 states projected an Internally Generated Revenue of 219.56 billion naira for the 1st quarter of 2023 but only made about 182.26billion naira which means that they had a revenue performance of 83.01 per cent.
This also means that the revenue underperformed by 16.99 per cent as it failed to hit the states revenue target.
The States debt from Commercial Banks
Statistics also indicated that the state governments indebtedness to commercial banks rose to 2.2trillion naira amid worsening revenue challenges.
This was according to data from the quarterly statistical bulletin of the Central Bank of Nigeria, which showed that states and Local Government Areas owed to banks about 2.21 trillion naira ( 2,881,355,789.00 dollars) as of March 2023.
CBN data also revealed the states’ indebtedness rose from 1.97trillion naira to the current figure, indicating an increase of about 240bilion naira within the period under review.
Data from the Debt Management Office showed that the 36 states and the Federal Capital Territory have 5.82trillion naira domestic debt and 4.35 billion dollar external debt.
The Word Bank position on the States Debts
In its December 2022 edition of the Nigeria Development Update, the World Bank noted that states’ debts would rise above 200 per cent of the revenue generated in 2022 and 2023.
“Debt levels for an average state are estimated to increase from 154.6 percent of revenues in 2021 to above 200 per cent of revenues in both 2022 and 2023.” World Bank stated
Borrowing for salaries
Economic experts, who spoke on the current debt of states, described borrowing for the payment of salaries as dangerous, cautioning states against it.
Professor Akpan Ekpo is an economist and former Vice-Chancellor of the University of Uyo.He said the bad economic situation of the country has compelled states to do more borrowing.
The economist advised against borrowing for recurrent expenditures, such as salaries.
“The situation is bad but most states do not have enough in terms of internally generated revenue. A lot of the states, even with their federal government allocation, cannot pay salaries, which is very dangerous. You should not borrow to pay salaries.
You should borrow to finance capital projects. States have to think of new ways of increasing their Internally Generated Revenues. If they continue borrowing to pay salaries, it is not good for the economy,” Ekpo said.
He urged the states to look at what they have in their states in order to find a way to increase their revenue.
Ekpo also urged the states to increase service delivery, which will attract more revenue.
Dr Aliyu Iliyas is a development economist.He described what states are doing as problem as borrowing to pay salaries are not healthy for their economy
“With the current hardship we have in the country, they may not have an alternative than to resort to borrowing. But borrowing to pay salaries is becoming a problem. We must stop borrowing for recurrent expenditure. We can borrow for capital expenditure; that is okay. The consequence is that we are digging ourselves into more trouble,” he said.
The states will find it difficult to increase the allowances of workers
The analyst admitted that state governments might be unable to join in the Federal Government’s effort to increase allowance to workers.
He then advised that each state should look inward, find what they are good at and maximize it.
However if state governors continue in this direction without taking the necessary precautions the debt will grow to a level that no bank will borrow them again .
Diversifying their Internally revenue sources as advised by the economic experts is the only option but most of the state governor’s tend to be not ready as they spend recklessly when it comes to their personal needs.
Fiscal Responsibility Commission engages banks
The Fiscal Responsibility Commission has said it is set for a stakeholder dialogue on how to implement sections of the Fiscal Responsibility Act 2007 relating to lending by government and public institutions in the federation.
The agency which is saddled with the task of promoting a transparent and accountable
government financial management framework for Nigeria .This was disclosed in a statement by its spokesperson Bede Anyanwu recently.
The Fiscal Responsibility Act 2007 (FRA), which is Nigeria’s foremost legal framework for the promotion, monitoring, and enforcement of fiscal discipline and accountability in the management of public finances, stipulates that lending by banks to governments or their agencies in contravention of certain provisions of the Act shall be unlawful.
So if such law is enforced by this agency, state reckless borrowing will be controlled.
The state government themselves should be mindful about the provisions of the Fiscal responsibility act 2007.
As their borrowing reached 46.17 billion Naira (61,774,074.90 dollars) presently.
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