Business

Dwindling revenue: Perpetuating state’s financial despair

Last week’s approval of N656.1 billion bridging facility to be disbursed by the Central Bank of Nigeria is the third tranche in the series of life line to be extended to states in the last six years. ABDULWAHAB ISA reports

The states’ internally generated revenue (IGR) data recently released by the National Bureau of Statistics (NBS) says a lot about states and their financial viability status. With the exception of a few states, many states with poorly ranked IGR will helplessly indulge ‘cap-in-hand’ for the free fall from the federation account to meet mandatory expenditure obligations. The internally generated revenue is the income generated by various states in the country, independent of their share of the revenue from the Federation Account.

States’ IGR

Snippet from recently released half year IGR report by NBS attests to the financial health of the 36 states and Federal Capital Territory (FCT), Abuja. With the exception of Lagos State, all others depend largely on statutory allocations to run their state affairs. According to NBS, collectively, the 36 states and the FCT recorded N849.12 billion IGR in the first half of 2021.

The figure represents a 39 per cent increase year-on-year after the coronavirus pandemic impacted revenue generation. NBS noted that IGR was N398.3 billion in Q1 and N450.9 billion in Q2, indicating a positive growth of 13.21 per cent quarter-on-quarter. Lagos State with N267.2 billion has highest IGR generation, representing 31 per cent of the total IGR in the first half of 2021. Lagos is followed by FCT with N69.1 billion; Rivers State N57.3 billion; Ogun State N54.8 billion and Delta State N41.9 billion.

Yobe State, on the other hand, generated the least IGR (N4 billion) in the first half-year of 2020, followed by Taraba with N4.77 billion, Gombe with N5.44 billion and Adamawa with N6.09 billion. Taking down further to zones, NBS computation shows in the first half of 2021 South West zone recorded the highest revenue of N385.4 billion, followed by the South South zone with N156.2 billion, while the North East zone recorded the least internally generated revenue of N42.9 billion. Lagos State generated 69 per cent of the entire IGR of the South West. Lagos’ IGR of N267.2 billion is more than what the entire northern states generated and more than south-south and southeast put together.

States at the mercy of bailouts

Apparently, the monthly dole out from the Federation Accounts Allocation Committee to three tires of governments is increasingly insufficient in meeting state financial obligations. There are gaps in states’ finances. The financial predicament of many states became pronounced in 2014. Bogged down with piles of unpaid arrears of salaries owed to workers and contractors’ obligations, the Federal Government came to the rescue of financially challenged states in 2015. To relieve states of their protracted financial burden and free them from civil servants and contractors’ debt, President Muhammadu Buhari gave states financial leases.

Between 2015 and 2021, the Federal Government has bailed out states with financial support in four trenches. The first bailout intervention was $2.1 billion (£1.4bn) translating to about N 700 billion at the time. Second tranche bailout to states was in 2017. The bailout sum was N243.8 billion. The Federal Government had released the breakdown of payments to the 36 states as refund of “over-deductions on Paris Club, London Club Loans and Multilateral debts on the accounts of States and Local Governments (1995-2002).” President Buhari was equivocally clear in his directive regarding the N243.80 billion second tranche, which was a Paris Club refund to states.

He admonished governors to use a major part of the funds to offset salaries, pensions and other allowances of workers. Sadly, most states expended a better portion of bailouts on frivolities. Sadly too, states are still burdened with both accumulated states’ government and local government councils’ workers’ salaries, pensions and contractor’s debt.

The bailouts are loans and not grants. The Central Bank of Nigeria, with relevant agencies, worked out a repayment plan. The refunds are to be netted from what is due to each state from the federation account. The states grumbled as the refund exercise was to begin.

They complained that direct deduction from their allocation will render states cash-strapped. President Muhammadu Buhari, last week, obliged the states with another bail out. This was to cushion the impact of bailout dedication on states’ revenue. Buhari approved N656.1 billion payments, making it the third bailout tranche in six years. Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, confirmed the president’s directive in Lagos, last week, at the National Council on Finance and Economic Development (NACOFED) conference.

The Central Bank of Nigeria has been put on notice about the latest bailout. The fund is to be disbursed within six months “The approval of Mr. President has been obtained for a bridging facility in the sum of N656.1billion to be granted to states over a period of six months towards cushioning the effects of their resumption in the repayment of the three federal government bailout facilities (Salary Bailout, Excess Crude facility and Budget Support facility) “Already, the modalities of the facility have been worked out and the disbursement is expected to commence by the CBN very soon.

“Government will also continue to provide other financing options to states in the form of concessionary loan facilities to support the development of vital sectors of the economy such as health, agriculture and SMEs aimed to complement the states in fighting the pandemic, creating the needed job for the people and alleviating poverty. The combined effect of these policies would assist in addressing the current security and other socio-economic challenges confronting the nation,” Mrs. Ahmed said. States are excited about the latest bail out which will translate to N18.5 billion due to each state.

Benue State Governor, Samuel Ortom promised that the N18.5 billion loan approved for states by the Federal Government through the Central Bank of Nigeria (CBN) will be judiciously applied by his administration. Others pledged the same commitment of putting the fund to ‘judicious use.’ “I want to commend the federal government for remembering us.

It is a welcome development; you are aware of the challenges of Benue state and other states of the first. You talk about salaries, pensions, gratuity, infrastructural deficit even those that were awarded and those that were awarded before we came in we have not been able to pay. “We are running a deficit budget so even the N18 billion may not be enough to cover the challenges we have at hand,” he said. Ortom pointed out that his administration was also paying loans taken by previous military and civilian administrations in the state.

Way out of insolvency

The magic wand to detach states from insolvency lies with the governors as state chief executive. First, states must prioritise their needs against wants. Governors must cut down heavily on frivolities and settle for items that are important. It’s high time states activate financial reforms with prudence as core value. The Federal Government has a template, which states can adapt and modify to suit their peculiarities. Beyond adopting taxes as means of IGR, states must tap into other mineral deposit and other sources of income earning endeavors laying untapped.

Last line

It’s high time insolvent and unproductive states initiated pragmatic approach of weaning themselves from Federal Government’s entire financial support. They should also activate means of attaining financial freedom.

 

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