Bankruptcy: Senate blames Governors for Mismanaging States’ Resources

The Senate on Thursday reached a consensus that state governors were responsible for the dwindling financial fortunes of their respective states, warning that urgent steps must be taken to forestall further decline of the 36 states’ economies.

Considering the report of its Joint Committee on National Planning, Appropriation, States and Local Governments, which investigated the looming bankruptcy of states, the senators said they were convinced that the states could do more in the area of revenue generation than relying totally on proceeds from the Federation Account.

The report was based on an earlier motion by Senator Olubunmi Adetumbi, raising the alarm of a likely financial catastrophe in the states going by economic indices, and calling for urgent measures to track the problem.

The Senate, in response to the motion and by a resolution, mandated the committee to look into the matter and report back.

The committee said nearly all the states depended fully on statutory allocations from the Federation Account and the Excess Crude Account, which are in turn dependent on the volatile oil market.

It said after reviewing the economic factors in the states, there were clear reasons to believe that the states were facing a looming danger of bankruptcy.

The report stated, “The over dependency on oil revenue at the expense of Internally Generated Revenue by states is responsible for their continued call on the Federal Government to share the proceeds of the Excess Crude Account to meet the growing cost of governance in states.

“For instance, the sum of $1.5bn was shared in three equal instalments from the Excess Crude Account in 2011 alone, out of which the states received the sum of $400.8mn. The final payment amounts to $500m.”

It said there was huge debt overhang on the states, which had resulted in substantial deductions from their allocations for the settling of their external and domestic debts, and bonds, indicating that “most of the state governments have collateralised their share of the monthly Federation Account receipts to service such debts.”

The report noted that the total external debt standing against the states as at December 2011 was $2.165bn, adding that most of the states were equally highly indebted to various local banks in short term borrowings and were substantially exposed to the capital market.

“Most of these loans are tied to irrevocable standing payment orders issued to the Accountant-General of the Federation to deduct directly from their monthly statutory allocations,” it said.

The Deputy President of the Senate, Ike Ekweremadu, who presided over the session, said the states were not supposed to be bankrupt given the resources available to them.

“Essentially, no state is supposed to be bankrupt, but as we can see today, there is a problem of government meeting up with its obligations to the people because of mismanagement of state resources,” he said.

Ekweremadu said governments at all levels should endeavour to use the limited resources available to them judiciously for the good of the people.

Senator Smart Adeyemi, while commenting on the report, said one of the problems was how to “come up with a system that can guarantee the appointment of credible people to be able to manage the people’s wealth.”

“We would emphasise to the governors to know how to galvanise economic resources. The kind of people elected determines the future of the states and the people,” he said. Speaking in the same vein, Senator Ayogu Eze said there was no proof that the states were actually poor, but that it was a problem of mismanagement of resources by the governors.

“When we discussed the issue of minimum wage, we said there was no state that cannot pay N18,000. We should make recommendations here that states have mismanaged the people’s wealth,” he said.

Eze said the Excess Crude Account was illegal and noted that the governors had made it difficult for the Sovereign Wealth Fund to work.

Senator Emmanuel Paulka, who also faulted the practice of governors waiting for allocations from the Federation Account, argued that states should come up with ways of generating revenue.

In its recommendations, which was wholly accepted by the Senate, the committee called for the review of the present Revenue Allocation Formula, noting that Sections 313 and 315 of the 1999 Constitution had provided that it should be reviewed periodically.