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FEDERAL GOVERNMENT: We Are Not Withholding States’ Revenue

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Okonjo-Iweala

• We Can’t Pay Salaries Because 30% Of Our Revenue Now
Go For Election Security, Say Finance Commissioners
• States’ Public Debt Now: N1.707 Trillion For Domestic,
$3.265b Foreign Stock
• Seek To Borrow More

WHEN in May 2013, The Guardian, in a news report, raised an alarm on the insolvency of states in Nigeria due to their huge domestic debt stock, which then was above N1.8 trillion, relative to their internally generated revenue (IGRs), based on a five-year Debt Sustainability Analysis (DSA), exercise, just concluded then by the Debt Management Office (DMO), it’s Director- General, Dr. Abraham Nwankwo, went berserk, insulting the newspaper in advertorials placed in major Nigerian newspapers.

The states’ public debt stock, as at December 2014, according to the DMO, is N1.707 trillion ($10.967 billion) for domestic and another sum of $ 3.265 billion for the foreign component.

One of the conditions precedent for obtaining loans is that the borrowing entity must sign an Irrevocable Payment Standing Order (IPSO), which instrument authorises the borrower’s funds to be deducted at source and only the balance paid to him or state as the case may be.
Nwankwo then insisted that The Guardian’s interpretation of the DSA Report was faulty and said Sates could continue to borrow as much as they could once they fulfill the conditions precedent for contracting loans, whether local or foreign. He even threatened a lawsuit even though he himself had identified this in the debt sustainability Report.

For instance, the Report then indicated that on a debt solvency and liquidity ratio analysis relative to revenue inflow to states, Cross River State is the heaviest debtor as it scores the highest burden rating of 138.86 per cent as at December 2011, representing its total public debt to total revenue ratio. The state’s public revenue is put at N77.489 billion, while her public debt is far above the figure at N107.600 billion.
Also, on a scale of domestic debt stock analysis, relative to Internally Generated Revenue (IGR) Cross River polls 584 per cent, next to the highest ranked state, Bayelsa, which polled 1,712 per cent.

While Cross River’s domestic debt stock as at December 2011 stood at N90.750 billion, her IGR at the period was only N16.553 billion.
On the total public debt sustainability score, Bayelsa is next to Cross River with a burden score of 104.93 per cent, with a debt stock of N167.123 billion relative to her revenue base of N159.278 billion, while she has the highest domestic debt burden score of 1,712 per cent relative to her IGR. The State’s local debt stock at the time of the analysis was N162.822 billion, while her IGR was a paltry N9.510 billion.
Lagos State placed third risky state in the total public debt solvency analysis, as it polled 73.21 per cent after Cross River and Bayelsa. Lagos public debt at the time was N234.608 billion, while her revenue base was put at N320.474 billion. The state equally scored a ranking of 61 per cent on the domestic debt solvency analysis, as its domestic debt stock was N157.536 billion, relative to its IGR base of N257.419 billion.

However, as the DMO was still busy trying to justify its position of encouraging states to continue to borrow, the Central Bank of Nigeria (CBN), a month latter raised a red flag and warned banks against their continued exposure to state governments and raised the assigned weighted risk by 100 per cent from 100 per cent before to 200 per cent.

The CBN circular then read in parts: “The recent crisis in the Nigerian banking industry highlighted several weaknesses in the system, key of which was the excessive concentration of credit in the asset portfolios of banks. Past experience revealed concentrations across products, business lines, and legal entities. The management of concentrations, or pools of exposures, whose collective performance may potentially affect a bank negatively, needs to be properly managed through the establishment of sound risk management processes.”

That’s barely two years now and the fears raised by The Guardian then are now here, as most of these states cannot pay salaries, which is the most fundamental obligation of a government, not to talk of other commitments like contractors and pension liabilities, all because of dwindling revenues from crude oil minerals, which has, in equal measures, affected the states’ fortunes.

Worried by the development, The Guardian, at the weekend sought to know from the Minister of State Finance, Ambassador Bashir Yuguda, who chairs the joint Federal – States Federation Allocation Committee (FAAC), where federally generated revenue are collated and distributed among the three tiers monthly, if part of the States’ revenue was being held leading to their poor liquidity situation.

The minister in response declared that states were not being owed but rather that the Federal Government has in recent times been giving to states revenue they were not expecting.

Yuguda, at the last FAAC meeting, said: “Let me tell you for a fact that Federal Government is not holding any money due to any state and that is the fact and we do our federation account meetings, there is a sharing formula both on mineral, non-mineral and tax collected by Federal Government and it is distributed based on that. So, there is no money hanging for the state that the Federal Government is holding, but the fact remains we are not holding any money going to the state. In fact, we even give them when they don’t expect it, like the N45 billion foreign exchange gain, we worked it based on the figures that we received and it was even sent to the states after our last FAAC meeting in February.”
The minister continued: “Like we keep saying, for us in the Federal Government, salaries are top of the line, we have to pay salaries whenever we receive our allocation from FACC, so, we believe the states should also do the same, and I believe they are trying their best based on the challenges they are having. Some of them, allegedly, have very big IGR figure, some are still trying hard to navigate through the tough time, but I believe priority should be given TO things that must be done. Let them prioritise their projects and let them also try to block all leakages, then live within the limited resources available to them. It’s unfortunate that some of them cannot pay salaries, but I think that is the basic thing that states should be able to meet.

“The issue of Sure-P, and you know, you only get Sure-P money if you are selling oil over and above the benchmark price. So, for the last couple of months, we have been having these challenges, that is why obviously, there is no in-flow in the Sure-P account, but that is not to say that there are no activities going on under Sure-P; activities are going on, but not with the scale or if the money were flowing. Obviously that is the issue on Sure-P.”

And in what appeared as admission that states’ liquidity position has bottomed out, the Chairman of States Finance Commissioners Forum, Mr. Timothy Odah, appealed to workers being owed for understanding, saying much of their now meager allocation were being deployed for security to guarantee a successful election, while another component was equally being invested to create more wealth.

Odah, who is Ebonyi State Finance Commissioner, resumed states’ agitations for the scrapping of the Federal Government’s Sure-P programme so that fund reserved for the programme could be distributed across board so as to ameliorate states’ liquidity position. He also appealed for the granting of concession to states to borrow more from the bond market to enable them invest.

Like we keep saying, for us in the Federal Government, salaries are top of the line, we have to pay salaries whenever we receive our allocation from FACC, so, we believe the states should also do the same, and I believe they are trying their best based on the challenges they are having. Some of them, allegedly, have very big IGR figure, some are still trying hard to navigate through the tough time, but I believe priority should be given TO things that must be done. Let them prioritise their projects and let them also try to block all leakages, then live within the limited resources available to them. It’s unfortunate that some of them cannot pay salaries, but I think that is the basic thing that states should be able to meet.



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