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Paris Club cloudy refunds to states



These are trying times for many states in the federation. While many of the state authorities are still battling with the payment of arrears of salaries and pension benefits to their public sector workers, the peculiarity of the current political climate with the oncoming party primaries and general elections has put economic governance and the provision of public services in the back seat. Consequently, the likelihood that funds meant for the upkeep of the states will be diverted to election-related purposes appears not far-fetched. This again does not inspire hope of a better tomorrow, the only comfort you can give to a weeping child.

Hence the recent decision of the Federal Government to release the Paris Club refunds to the states is considered wholesome to some state government officials but curious to some other members of the public. In retrospect, the Paris Club refunds are the longstanding claims resulting from reported over-deductions regarding Paris Club debts made on state government accounts as far back as 1995 to 2002. These refunds are over deductions from the states’ Federation Account Allocation Committee payments for foreign loan service over the stated period. These refunds have been an issue of dispute between the federal and state governments, with the Debt Management Office taking on the yeoman’s job of reconciling the extent of overdeduction for individual states.

So far, with the directive by the Presidency in 2016 that 50% of the claims by the states be paid back to them, to sort out salary and other pressing financial needs, the balance of the claims has been a subject of controversy between the states and the Federal Government.


In this regard, the Federal Ministry of Finance recently made statements, giving conditions for the payment of the final approval of the balance of $2.689 billion. The conditions include salaries and staff-related arrears must be paid as a priority that the states make a commitment to the repayment of their budget support loans, that they settle the amounts due under the Presidential Fertilizer Initiative as well as committing to the clearing of their matching grants from the Universal Basic Education Commission. The setting of these conditions has created some concerns in some quarters. First, why should the Federal Government keep the Paris Club refunds until now? Is Nigeria no longer a federal republic? Where is the authority of the Federal Government to dictate terms of release to the sovereign federating units in this convoluted federation?

There are more fundamental questions that should have been addressed when the Paris Club refunds story emerged. One of the points at issue is: Even if the governments were to spend these refunds, why couldn’t they be channelled to capital projects that would enhance social overhead capital and thus increase economic activities? Wouldn’t the investment of these funds in capital projects reduce the tempo of the foreign borrowings this government has recklessly embarked on since its inception? Why were there no critical thinking and strategic planning through the National Economic Council (NEC) chaired by the Vice President to the extent of devoting a large chunk of these funds to development of critical infrastructure to stimulate growth of the economy? Why has the presidency been so un-resourceful from the way it has been emphasising payments of salaries? Why are so many states still owing salaries, allowances and pensions despite the huge refunds? Is it not scandalous that many states did not pay salary arrears after collecting the earlier tranches of the refunds?

Behold, there is a new but curious twist to the country’s economic management model, which has raised some eyebrows. A case in point is where the Federal Government reportedly put up about $322 million of the recovered “Abacha Loot” for sharing to the shadowy “disadvantaged members of the society,’’ while in the same vein, it borrowed from China of about the same amount ($328 million) to finance ICT projects. Why did government not refrain from the sharing and instead use the money to address the issues the loans were meant for? Why should the states be made so subservient to the centre such that their mere survival should be at the whims and caprices of the federal authorities? If this is left unchallenged, then the Federal Government can just decide to suffocate the functioning of any “unfriendly” state as well as overly promote economic activities in another state, considered to be “friendly”, at the expense of the rest.

The above scenario raises suspicion too in the reported secret release of N16.9 billion worth of the Paris Club refund to Osun State, well ahead of the other states. Does it mean the conditions stated for release do not apply to Osun State? Is it that other motives are likely in this case given that gubernatorial elections are slated for Saturday, 22nd September 2018? Would this release not have any effect on the outcome of the election? Would this not enable the ruling party in the state, which happens to be the same at the federal level, have an undue advantage over other parties in the election? These are thorny issues. If none of the above situations apply, can it be said that Osun State satisfied all the stated conditions for the release of the funds? These are all questions begging for answers and the Federal Government will do itself some favour by providing explanations to assuage the fears and suspicion of the discerning public in this era of economic and political uncertainty.

Some more fundamental issues that arise from all these is the nature of the structure of the Nigerian federation. With all these, can we truthfully say we are running a federation in Nigeria? In the first place, the concept of refund is considered to be a misnomer. Why should the Federal Government keep the refunds until now and dish it out whenever it pleases? Why should the Federal Government guarantee loans for state governments?


That is the main reason calls for the restructuring of this complicated federation have become more urgent by the day, to resolve all these stifling bottlenecks to real national development and greatness. Restructuring Nigeria will lead to the creation of several centres of excellence and good performance across the various regions of this country.

Nigeria, as currently structured is a mere “sharing machine.” What happens when there is little or nothing is left to share? What manner of federating units (in a federation) that will have to wait for some largesse from the centre before paying workers? How will the workers be paid now that there won’t be Paris Club refunds anymore after the last tranche?

Restructuring of the federation should be the pre-occupation of Nigeria’s leadership at this time as this newspaper notes every week. Yes, true federalism is quite inevitable to turn the most populous black nation on earth (Nigeria) into a productive and entrepreneurial nation. That is the only way monthly wealth sharing can be ever-lasting wealth and value creation for the present and future generations.

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