Things may be falling apart for Nigeria’s state governments as the revenue from the centre can no longer hold.
This summarises the current financial status of many of
the 36 federating units in Africa’s largest economy, due to the negative
impact of lower oil prices and the resultant collapse in oil revenues
available for the federation to share.
State finance commissioners converge at the Federation
Accounts Allocation Committee (FAAC) meeting, every month in Abuja, to
share the previous month’s oil receipts (and other incomes).
But FAAC meetings have been less gleeful, in the past 10
months, as the revenue pool shrank sharply by 42 percent to N435 billion
in March 2015, correlating strongly with a similar percentage fall in
oil prices to $65 per barrel over the same period.
“Thirty-five percent of state governments is insolvent and
salary arrears are choking most state governments,” says Bismarck
Rewane, economist and CEO of the Financial Derivatives Company.
Expect default on state debt bond obligations and defaults
on contractor debts and possible rescheduling,” Rewane said while
painting a stark picture of states’ finances at the monthly CEOs
breakfast meeting of the Lagos Business School on May 6.
Data compiled by Economic Associates show that FAAC income
contribute up to 80 percent of total revenue in some states, which rely
on the monthly handout for virtually every payment in the state.
Whereas the Federal Government has been able to augment
its own share of the revenues with domestic and external borrowings to
fund recurrent expenditure, states have not been so lucky and they are
making tough choices between paying workers’ salaries, servicing
existing debt obligations and executing capital projects, among other
pressing financial needs.
Reports, last week, quoted Ngozi Okonjo-Iweala,
coordinating minister of the economy and the minister of finance,
admitting the Federal Government’s financial handicap.
“We’ve had a cash-flow crunch” and “we’ve
had to manage the first half on a month-by-month basis,” Okonjo-Iweala
told reporters last week Tuesday in Abuja.
According to her, the government had
already borrowed N473 billion (over 50 percent) out of its budgeted N882
billion debt programme for 2015, with no funds released so far for
capital projects.
Analysts at London-based Economist
Intelligence Unit (EIU) view the finance minister’s comments both as
“good news” and “some maturity in handling the loss of revenue” on the
part of the current administration set to handover power on May 29.
But state governments would differ in
this opinion as they grapple with the consequences of Africa’s largest
economy being dependent on oil receipts for at least 75 percent of its
revenues.
Investigations by BusinessDay’s state
correspondents, earlier in March, confirmed that some states owed
workers up to four months salaries. The tally has now risen to six
months, as labour unions insist that workers must be paid before May 29.
There are limited funding alternatives
for the states beyond an aggressive drive for internally generated
revenue (IGR) from businesses and individuals, who are already being
taxed by the combined impact of naira devaluation, rising inflation, and
very recently, fuel scarcity.
States’ financial woes are further
compounded by the crowding-out effect of FGN bond issuances in the
domestic debt market and the directive to commercial banks not to grant
state loans without prior approval or consultation with the Federal
Finance Ministry, to avoid potential defaults.
The Finance Ministry believes the
situation with the states could have been avoided if they “prioritised
salaries … [but] … they chose not to do so”, says ministry spokesperson,
Paul Nwabuikwu.
Nigeria’s 36 states and the FCT Abuja
account for a total of $14.1 billion in both domestic and external debt
versus $3.9 billion in internally generated revenues (IGRs), according
to latest available data from the Debt Management Office and the
National Bureau of Statistics.
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