Group Faults Buhari’s Bailout To States

Posted by African Examiner Latest Headlines, News Wednesday, July 8th, 2015

By Eric Ojo – Centre for Social Justice (CSJ) has faulted President Mohammadu Buhari’s decision to grant financial bailout to state governments that are unable to pay civil servants in their respective states across the country.

The Centre said the President’s directive to the Central Bank of Nigeria (CBN) to provide a loan package ranging from N200 billion to N300 billion for states to pay arrears of workers’ salaries, clearly sets a bad precedent.

CSJ warned that for the CBN to raise such a whopping bailout fund for states to access without conditionalities is nothing short of licensing fiscal rascality writ large, adding that the Section 41 of Fiscal Responsibility Act applicable to all States of the Federation (vide items 7 and 50 of the Exclusive Legislative List) prohibits borrowing for recurrent expenditure and payment of salaries.

The group said it is fiscal crime to allow states to have access to a bailout fund in a society like Nigeria where budgets are not public documents; where accounts have not been audited for the past couple of years and there have been no follow-ups on audit queries and findings; where no biometric verification of the workforce to remove ghost workers; or states that pay 20 per cent of their Internally Generated Revenue (IGR) to the private companies engaged in it collection; where states with commercial bank loans and bonds that cannot be justified by capital projects in the state.

The minimum that is expected, according to the Centre, is that strict conditions of fiscal reform should be attached to accessing the loan, noting that it will be unconscionable for CBN to give public funds to be managed by a Governor who has appointed tens of Special Advisers and Assistants; still maintaining a long convoy of cars for his entourage and or maintaining an aircraft at state expense; or drawing hundreds of millions monthly on unaccounted security votes.

Specifically, the three tiers of Government are to share $2.1billion being proceeds of investments in the Bonny Liquefied Natural Gas Project and $1.6bn from the Excess Crude Account (ECA). The Debt Management Office (DMO) is to facilitate the restructuring of the commercial loans put at N660bn and extend the life span of the loans which will reduce states debt service obligations.

“On the surface of it, these are welcome developments but a proper analysis of the legal and policy implications of these developments sends wrong signals for the improvement of fiscal governance particularly at the state level”, the group said in a statement made available to African Examiner on Tuesday in Abuja.

The statement noted that sharing the proceeds of profits accruing from investments in the Bonny LNG at a time Nigeria is looking for resources for further trains of the Bonny LNG Plant and for new LNG projects at Brass and Olokola is not a good practice worthy of replication.

It added that if the profits accruing to the Federation Account from Bonny LNG had been properly managed and invested, Nigerian would have gone beyond the present six LNG trains and would have been in the tenth to thirteenth train and thereby laid a solid foundation for diversified earnings to the country.

The statement further observed that in the discussions between the President and the Governors that preceded this bailout package, there was no mention or acknowledgement of the contributions of Governors to the inability of states to pay workers and the parlous state of their finances.

“Rather, they heaped the blame on the out-gone Federal Government. However, the truth remains that the poor state of finances at the state level is a product of the fiscal irresponsibility of Governors who mismanaged their state finances”, the statement stressed.

It also pointed out that sharing the remaining proceeds of the ECA leaves Nigerian totally vulnerable to the continuing oil price shock. “Yes, the vulnerability has started manifesting as reduced oil resource inflows into the Federation Account but this development of sharing all in the ECA leaves Nigeria at a total rock bottom with no elbow room at all.

“We note that Governors have been clamouring for the closure of the ECA and find this as a good opportunity to do so since the founding fathers and mothers of ECA appear to have left government. Pray, by the time the ECA is closed, where will the next funds to share come from?” it added.

The statement further expressed fears that bailout will only treat the symptoms and leave the fiscal ailment to deteriorate as there will be no penalties for fiscal malfeasance or a guarantee of non-repetition.

“Any state intending to access the CBN funds should undergo a federally administered fiscal governance and public finance management review which will identify the loopholes and challenges that need to be closed to avoid waste and abuse of state finances.

Funds should be released in installments, over time when the state shows evidence of substantial progress and commitment in overcoming the challenges. The way forward is to convert this challenge into an opportunity for improved fiscal governance at the state level. We should not use public funds to reward fiscal irresponsibility”, it further admonished.

It said fiscal crime to allow states to have access to this bailout fund – where budgets are not public documents; accounts have not been audited for the past couple of years and there have been no follow-ups on audit queries and findings; no biometric verification of the workforce to remove ghost workers; or states that pay 20% of their Internally Generated Revenue to the private companies engaged in IGR collection; states with commercial bank loans and bonds that cannot be justified by capital projects in the state, etc.