Policy Briefs

Fiscal Bailout: Time for States to Recalibrate

In life and statecraft, there comes a time when delusion meets with reality. And so it is now, for twenty-eight Nigerian States and their elected leaders.  The fiscal cliff confronting states that cannot meet their basic fiduciary obligations, including payment of salaries, is hardly surprising.  This crisis is the manifestation of years of fiscal profligacy, malignant imprudence, malfeasance, disregard for proper planning and an aversion by elected officials to the intricacies of adaptive leadership and good governance. But, the crux of the matter is the lack of vision, indiscipline and utter disregard for results-based budgeting that aims at efficiency and thus compels short, medium and long term planning.

It is unconscionable that seventy-five percent of Nigerian States that collectively earned over N2.8 trillion in internally generated revenue (IGR) in the past five years, and collected regular monthly allocations from the Federation Account,   cannot pay salaries. In the 2013 financial year, the 36 states collected N7.9 trillion, and N7.75 trillion in 2014. What is mindboggling is how States that generated some N41.6 trillion between 2011 and 2014 financial years can become so cash- strapped. Read poor fiscal management.  The raging debate is whether the cash-strapped States should get a bailout from the federal government and the nature of the bailout. The reality is that recklessness of any nature, fiscal or otherwise, should not be rewarded.  Mistakes and accidents can be overlooked, not fiscal profligacy involving public funds.  For too long, our elected leaders have operated on the assumption that they are not accountable to the people, and that they will not be evaluated by the people.

At election times, they use state funds to finagle their way back into office.  Now, it is crunch time and the evaluation will be done on the moral basis of how well they managed their state coffers; and how well they have planned for the proverbial rainy day. Still, our present circumstances compel the Nigerian attentive public to speak truth to power, knowing now, as it were, that politics is too important to be left to politicians.   So, should the states trapped by fiscal imprudence and insolvency be bailed out?  The answer is not immediately!

Let them sweat it out and figure out how to recalibrate.  Should the affected states decide to take interim bridging loans to fill the existing fiscal gaps, they will hopefully manage the resources frugally. And, should one or two states shut down due to insolvency, so be it. Such developments will make it clear to all that elected leaders who fail to provide more accountable  government will be swept aside by their own failings. In the end, any bailout must apply equitably to all 36 states and with stringent conditionalities. States needing the bailout can draw down on the funds and those who don’t, can hold theirs in reserve.  The reality is that the present fiscal crisis was not entirely unforeseen. When the Sovereign Wealth Fund (SWF) was proposed some years back as a stopgap measure for times like these, many state governors demurred. I recall in particular, former Gov. Rotimi Amaechi’s trenchant criticism of the SWF and his blunt refusal to support the establishment of the fund.  Granted that some who are now governors were then outside the governance orbit; most already had political aspirations and were members of Nigeria’s attentive public.  They should have spoken up.

The genesis of the present crisis requires no hard scrabble analysis to decipher. A conjunction of circumstances, namely, misplaced priorities, poor fiscal planning, preference for envelope budgeting, dysfunctional tax regimes, grandiose ego projects, bloated governance personnel, states over-reliance on appropriated local government funds and finally, crashing of global oil prices, combined to get the states into their present quandary.

Today, the indebted states collectively owe N658 billion.    President Muhammadu Buhari did well in hearing out the governors who are seeking a bailout. His expressed willingness to bail them out, subject to the advice of his Economic Team, is commendable.  His advice that they should continue sorting out their challenges, including through the recovery of funds stolen by their predecessors, is also instructive.  But, there is more.

Conventional wisdom advises instant belt-tightening; and cutting one’s coat according to one’s cloth. If addressing the prevailing challenges warrant further borrowing and bailouts, then fiscal responsibility will compel corollary adjustments through efficient cost-cutting.  One is hard-pressed to hear the affected states proposing such remedial measures.

The proposal by the governors to restructure their debts by liquidating their longer tenured bonds via Irrevocable Standing Payment Order (ISOP), while seemingly salutary, amounts also to egregious passing of the buck to their successors.  Paradoxically, by this request, the governors seek remedial measures via the very route they are unwilling to walk with long term and cost-effective fiscal planning that would place their successors in good stead.

Responsibility for change rests with the citizens, who must now insist that the twenty-eight cash-strapped States borrow a leaf from the eight solvent states and draw comparative lessons from what the solvent states are doing right.  It is noteworthy that my home state, Anambra, is not one of the insolvent states. Her secure position is not unconnected to past and lingering pains of the non-payment of salaries experience, which the state went through during Mabadinuju era and the commitment by succeeding governors that never again will the Anambra people undergo such fiscal trauma.     It is time to think the unthinkable. There are other compelling fiscal issues that the three tiers of government must begin to grapple with under President Buhari’s leadership, and in light of our dwindling oil revenue.

First, we must trim the cost of governance drastically at all levels, thus making the public service nimble and efficient.  Second, we must take hardheaded decisions that will allow the States and Local Governments to receive more than the Federal Government in federal revenue allocations. The present 52-26-22 percent ratio is inequitable. Third, the States must commit to Local Government autonomy, despite the prevailing argument that the local government is not a federating unit. Fourth, the public and private sectors must share the responsibility for wealth and job creation.

Finally, the present fiscal crisis which coincides fortuitously with the change in administration should compel honest dialogue at all levels.  Inevitably, the States will negotiate from a point of weakness. While they need not grovel, their parlous circumstances ought to be sufficiently humbling to compel an honest and introspective evaluation, recalibration and refocus on good governance processes and related actualities.  On this, the nation must act in concert.

• Obaze, MD/CEO Selonnes Consult is a public policy adviser and the immediate-past Secretary to the Anambra State Government. 

Oseloka Obaze, MD & CEO

Oseloka Obaze, MD & CEO

Mr. Obaze is the former Secretary to the State Government of Anambra State, Nigeria from 2012 to 2015 - MD & CEO, Oseloka H. Obaze. Mr. Obaze also served as a former United Nations official, from 1991-2012, and as a former member of the Nigerian Diplomatic Service, from 1982-1991.

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