By Ohia Israel
Faced with precarious financial situations, 18 financially bankrupt states out of the 36 states of the Federation met in Abuja last week where they proposed a bailout plan. These states include Abia, Akwa Ibom, Bauchi, Benue, Cross River, Ekiti, Imo, Jigawa, Kano, Katsina, Kogi, Ogun, Ondo, Osun, Oyo, Plateau, Rivers and Zamfara.
According to a statement issued by Asishana Okauru, the Director General of the Governors’ Forum, the governors are to brainstorm on possible solution to the several months of unpaid salaries in the technically bankrupt states among other issues.
Many lingering questions have, however, been on the lips of Nigerians as to why they cannot pay salaries. Some financial institutions and experts provide an insight and answers as to why these debtor states exist in Nigeria.
For instance the Central Bank of Nigeria, CBN, in its Economic Report for the month of April said that the total statutory allocation to the state governments stood at N153.45 billion in April 2015. This was 30.6 and 22.9 per cent below the 2014 monthly budget estimate and the level in the preceding month, respectively. The dwindling revenue of federal, state and local government is as a result of falling oil prices.
Giving insight into the poor financial status of states which depend on monthly federal allocation, the CBN report for April said: “The breakdown showed that at N119.27 billion or 77.7 per cent of the total, state governments’ receipt from the Federation Account was below both the 2014 monthly budget estimate and the level in the preceding month by 29.7 and 30.3 per cent, respectively.
“At N34.17 billion or 22.3 per cent of the total, receipts from the VAT Pool Account was below the monthly budget estimate by 33.4 per cent, but exceeded the level in the preceding month by 22.2 per cent. Total receipts by the local governments from the Federation Account and VAT Pool Account stood at N88.91 billion at end-April 2015.
“This was lower than both the budget estimate and the level in the preceding month by 33.8 and 19.7 per cent, respectively. Of this amount, receipts from the Federation Account were N64.99 billion (73.1 per cent of the total), while the VAT Pool Account accounted for N23.92 billion (26.9 per cent of the total).
“At N735.07 billion, estimated federally-collected revenue in April 2015, was lower than the monthly budget estimate by 9.8 per cent. It was, however, higher than the receipt in the preceding month by 35.8 per cent. The decline in estimated federally-collected revenue (gross) relative to the monthly budget estimate was attributable, largely, to the shortfall in receipts from oil revenue during the review month”.
The Apex bank also hinted that; “At N286.24 billion or 38.9 per cent of total revenue, gross oil receipt was lower than the monthly budget estimate and the level in the preceding month by 36.8 and 21.5 per cent, respectively. The decline in oil receipts relative to the monthly budget estimate was attributable to the fall in receipts from crude oil and gas exports, occasioned by the drop in the price of crude oil in the international oil market.”
The report further stated “gross non-oil receipts at N448.83 billion or 61.1 per cent of the total revenue was above the monthly budget estimate and the level in the preceding month by 23.9 and 154.1 per cent, respectively. The increase in non-oil revenue relative to the monthly budget estimate reflected largely, the increased receipts from the FGN Independent Revenue.”
It also said “of the gross federally-collected revenue, N307.45 billion (excluding deductions and transfers) was transferred to the Federation Account for distribution among the three tiers of government and the13.0 per cent derivation fund.
“The Federal Government received N146.49 billion, while the state and local governments received N74.30 billion and N57.28 billion, respectively. The balance of N29.38 billion was distributed to the oil-producing states as 13.0% Derivation Fund. From the VAT Pool Account, the Federal Government received N10.25 billion, while the state and local governments received N34.17 billion and N23.92 billion, respectively.
In addition, N33.53 billion and N9.49 billion were distributed as Exchange Gain and NNPC Additional Revenue among the three tiers of government and the 13.0 per cent Derivation Fund as follows:
The Federal Government received (N15.37 billion and N4.35 billion), while the state and local governments received (N7.79 billion and N2.21 billion) and (N6.01 billion and N1.70 billion), respectively. The balance (N4.36 billion and N1.23 billion) was distributed to the oil-producing states as 13 per cent Derivation Fund.
Furthermore, N6.33 billion was received by the Federal Government from the NNPC in respect of the eighth equal installment refund of indebtedness. Overall, the total allocation to the three tiers of government from the Federation Account and VAT Pool Account in the review month amounted to N425.14 billion, compared with N557.80 billion in the preceding month.
“At N452.38 billion, the estimated Federal Government retained revenue for April 2015 was above the monthly budget estimate and the receipts in the preceding month by 46.0 and 77.1 per cent, respectively. Of the total amount, the Federation Account accounted for 32.3per cent, while FGN Independent Revenue, others, VAT Pool Accounts, NNPC Refund and NNPC Additional Revenue accounted for 59.6, 3.4, 2.3, 1.4 and 1.0 per cent, respectively.
At N155.52 billion, total estimated expenditure for April 2015 was lower than both the monthly budget estimate and the level in the preceding month by 60.2 and 26.3 per cent, respectively. A breakdown of total expenditure showed that the recurrent expenditure accounted for 88.8 per cent, while the capital expenditure and transfer components accounted for the balance of 2.8 and 8.4per cent, respectively. Non-debt obligations accounted for 43.7per cent of the total recurrent expenditure, while debt service payments accounted for the balance of 56.3 per cent. Thus, the fiscal operations of the Federal Government resulted in an estimated surplus of N296.86 billion.
According to the CBN “Nigeria’s crude oil production, including condensates and natural gas liquids, was estimated at an average of 1.91million barrels per day (mbd) or 57.30 million barrels for the month. This represented an increase of 5.0 per cent above the level of 1.82 mbd or 56.42 mb recorded in the preceding month. Crude oil export was estimated at 1.46mbd or 43.80 million barrels. This represented an increase of 6.6 per cent above the level recorded in the preceding month.
Deliveries to the refineries for domestic consumption remained at 0.45 mbd or 13.50 million barrels during the review month. At an estimated average of $59.55per barrel, the price of Nigeria’s reference crude, the Bonny Light (37º API), rose further by 3.7per cent above the level in the preceding month.
The average prices of other competing crudes, namely the U.K Brent at US$58.18 per barrel; the West Texas Intermediate at $52.82 per barrel; and the Forcados at US$59.88per barrel, also showed similar trends as the Bonny Light. The average price of OPEC’s basket of eleven crude streams, at $55.61per barrel, indicated an increase of 5.7 per cent, but indicated a decline of 46.7 per cent, compared with the average of $52.61and $104.27per barrel recorded in the preceding month and the corresponding period of 2014, respectively.
Moreover, in 2003 the then Economic Adviser to President Olusegun Obasanjo, Professor Charles Soludo, said that most state governments have signed away their future statutory allocations to contractors whom they owe.
Explaining why many states are bankrupt and cannot fund developmental projects, Soludo said that most states were technically bankrupt as huge deductions are made from their allocations to pay such creditors.
This, he said, was “the reason why a good number of states in the Federation owe their workers several months of unpaid salaries.” He said after such deductions from allocation to the states, they are left with little or nothing to operate with. As a result, most of the states are not able to perform their statutory obligations. Instead of telling the people the simple truth, they keep complaining of lack of funds.
Most of these states go into further indebtedness through heavy borrowing and undertaking projects they have no financial capacity to carry. “The problem of states in the Federation is their total dependence on the Federal Government. Their internal revenue drive and generation are so weak that no state can operate without federal allocation or grant in some cases.”
Also responding to the high indebtedness of states, Director-General, Securities & Exchange Commission (SEC) Mr. Mounir Gwarzo condemned the indebtedness of some state governments, which debts did not measure up with infrastructural development in their states as the agony of unpaid salaries haunt most of them.
He said: “Indebtedness is not bad, what is bad is a situation where such funds are used for consumption. If there is commensurate infrastructural development on ground, there is no regret in borrowing. Even abroad, states borrow for development”. Senator Ben Murray-Bruce in a tweet, said: “I am deeply sad some state workers have not been paid for ten months. I think the Federal Government should pay them and collect the money back at source.”
He added that where states owe, should the National Assembly intervene and enact laws empowering federal government to deduct workers salary at source before remitting state’s allocations?
Analysts blamed the inability of states to pay salaries on their over-dependence on allocation from the federation account. They are of the view that majority of the states had over the years failed to innovate, become lazy and had refused to look at alternative sources of generating revenue to drive their activities.
According to the analysts at PWC, as revenues are diverted to service debt, most states will fall behind on wages owed to their workers, leading to significant worker strikes which would bring most state governments to a standstill while public services such as education and healthcare are disrupted and then all infrastructure projects, including road development and water and sanitation programmes, are abandoned.
Unable to raise short-term debt in increasingly illiquid and shallow national capital markets, some highly-leveraged states will miss scheduled interest repayments,” they added. Analysing the impact of the fall in oil prices on three different states— Kano, Delta and Lagos States, the analysts said:
“Kano is the sixth largest state by GDP and is heavily reliant on federal transfers, which make up over 95 per cent of 2014 budgeted revenues. Given its low tax base, Kano will struggle to find other sources of revenue if federal allocations dry up. Unlike the Federal Government, which spends the majority of its budget on current items such as payroll, Kano dedicates around 75% of expenditure to capital projects.
A squeeze on Kano’s state budget would see these capital projects come to a halt. For the economy, this could inhibit productivity growth: but for its population, this means uncompleted roads, and lower quality water and sanitation infrastructure.
“Delta is Nigeria’s premier oil-producing state with over 60% of revenues directly-related to oil production. Given a heavy reliance on federal and internally generated revenue from the sector, Delta would feel the pinch more immediately than Kano and the other states.
The squeeze on Delta’s budget would force significant cuts in both current expenditure and capital expenditure. Where these capital projects relate to the oil sector, this would inhibit state production levels further down the line.
In April, the Forum of Finance Commissioners openly criticised state governors who owe workers’ salaries, saying that no governor had any excuse for owing their workers.
Chairman of the forum before the new government took over, and Commissioner for Finance of Ebonyi State, Barr Timothy Odaah, told journalists at the end of the Federation Accounts Allocation Committee, FAAC in April that those owing should have made payment of salaries a priority, rather than spending state funds on electioneering campaigns and should be held responsible by the workers and the public.
Some state governors have been accused of squandering their resources on unprofitable ventures such as hiring and flying private jets and excessive political appointments. Such governors did not use the resources at their disposal to develop their states’ economy. As a result they could not generate internal revenue to support the state.
Internally generated revenue of states has been poor though rising in total amount. Lagos, Rivers, Delta, Edo, and Akwa Ibom are states that have recorded the highest internally generated revenue (IGR) in the years spanning 2010 to 2013. Available data from the National Bureau of Statistics (NBS) and Joint Tax Board (JTB) for the period showed that Lagos dominated in 2010, Rivers followed with N173.1 billion, while Delta realised N106.4 billion.
Edo raked in N53.53 billion, just as Akwa Ibom made N35.6 billion. On the other hand, Jigawa, Zamfara, Nasarawa, Borno and Taraba States dominated the bottom of the table having generated the lowest IGR among the 36 states of the federation. Jigawa recorded only N2.725 billion, while Zamfara accounted for N6.374 billion. Nasarawa, Borno, Taraba generated N5.982 billion, N6.83 billion and N7.571 billion respectively.
The IGR was realised from Pay-As-You- Earn (PAYE), direct assessment, road taxes and other revenue with PAYE accounting for the highest amount. A breakdown of the Lagos IGR in three years showed that the state recorded N149.9 billion in 2010, which increased to N202.76 billion in 2011 and rose further to N219.2 billion in 2012 and N384.259billion in 2013. Of the N219.2 billion in 2012, Lagos realised the highest revenue of N172.44 billion from workers through the PAYE.
A total of N4.36 billion came from road taxes, N1.89 billion from direct assessment of companies doing business while N40.513 billion was from other revenue sources. Lagos State realised about N120.25 billion from PAYE in 2011; N7.97 billion from direct assessment, and N74.54 billion from other sources, while N104.681 billion came from PAYE in 2010; N7.51 billion from direct sources, and N73.704 billion from other sources.
Rivers State, which came second on the table, realised about N49.59 billion in 2010; N52.711 billion in 2011 and N66.28 billion in 2012 and N87.91billion in 2013. The state raked in N55.1 billion through PAYE in 2012; N485.9 million through road taxes; N22.075 million through direct tax assessment and N10.668 million through other revenue sources during the year.
Delta State realised N26.1 billion in 2010, N34.75 billion in 2011, N45.5 billion in 2012 and N50.2 billion in 2013. PAYE fetched Delta State over N42.565 billion in 2012. Also, N244.195million was realised from road taxes, N123.4 million from direct assessment, while N2.635 billion came from other sources.
Edo State realised N10.651 billion in 2010, which increased to N14.764 billion in 2011 and to N18.88 billion in 2012 and further to N18.89 billion in 2013. Similarly, Akwa Ibom raked in N10.133 billion in 2010, N11.678 billion in 2011 and N13.517 billion in 2012 and N15.398 billion in 2013. Kano generated N6.6 billion in 2010, N6.618 in 2011, N11.051 billion in 2012 and N17.142 billion in 2013.
Kaduna was able to generate N11.564 billion in 2010, N9.781 billion in 2011, N11.531 billion in 2012 and N10.932 billion in 2013. In the same vein Enugu internally generated revenue stood at N13.7 billion in 2010 dropped to N7.287 billion in 2011, N12.209 billion in 2012 and N20.203 billion in 2013. Oyo state’s internal revenue which stood at N10.488 billion in 2010 dropped to N8.915 billion in 2011. It however rose to N14.598 billion in 2012 and further to N15.251 billion in 2013.
However, Jigawa State, realised N1.241 billion in 2010 and N1.482 billion in 2011, but no information was provided in respect of 2012 but figures for 2012 and that of 2013 were not recorded. Yobe which had N5.96 billion as internally generated revenue in 2010 saw its internal revenue plunge to N2.385 billion in 20111; N1.785 billion in 2012 and rose to N3.072 billion in 2013.
Borno, which is also among the states with the worst record in terms of IGR, have been suffering from terrorist attacks by Boko Haram. This development made the Federal Government declare a state of emergency in the state, along with Adamawa and Yobe states last May and to further renew the emergency rule after the expiration of the six-month period.
The poor internally generated revenue performance of states started with the discovery of oil in commercial quantity in the country. A cursory look at the revenue profile of state governments in 2002 showed that only Lagos State was able to generate the sum of N29.3 billion internally out of its N58.2 billion budget provision which represents 50 per cent of its 2002 expenditure profile.
It was followed by Rivers State which had a statutory allocation of N25 billion and internally generated revenue of N12.5 billion. The internally generated revenue of Rivers State represents 32.4 per cent of the state expenditure profile for 2002. In the same vein, Kano State generated a total of N7.35 billion while it received the sum of N18.5 billion as statutory allocation. Its internally generated revenue accounted for 17.9 per cent of the state expenditure profile for 2002.
According to statistics provided by the CBN, only five other states were able to generate internal revenue to the tune of N2 billion. The states are: Akwa Ibom N2.6 billion, Cross River N2.1 billion, Katsina N2.4 billion, Ogun N2.5 billion and Osun N2.33 billion. Ten states, however, managed to raise N1 billion and above internally in 2002. They are Anambra, Ekiti, Enugu, Imo Jigawa, Kaduna, Kogi, Ondo, Oyo and Zamfara. Others generated internal revenue of less than one billion in 2002.
From the revenue profile of state governments, they cannot finance on their own the overhead cost of running their states. This means that lack of performance of most state governors is caused by their over dependence on the Federal Government which also depends solely on revenue from oil. The pitiable condition of states in the country is attributable to the fact that they have not explored other avenues of generating revenues. States in a bid to meet their statutory obligations go into borrowing.
The federal Government under President Olusegun Obasanjo had set up the excess crude account where the oil revenue above the budget bench mark was being saved every year for the rainy day. But state governors fought the decision and insisted that the money should be shared instead of being saved when prices of crude were high. The Federal Account Allocation Committee on monthly basis was taking from the fund to augment short falls in oil revenue accruing to the federation.
Nigeria’s Excess Crude Account, which at a time had about $20 billion has plunged to $2.45 billion as oil prices continue to fall. The balance in the dollar component of the excess crude oil revenue account depleted to about $2.45 billion in December 2014. The account, which stood at about $4.11billion in October, dropped to about $3.11billion in November 2014.
Details of the balance of the account released at the end of the FAAC meeting showed that the transfer to the account as a result of foreign exchange gain dropped from N1.767 billion to about N665 million.
The Accountant General of the Federation, AGF, Jonah Otunla, said in a statement at the end of the meeting that the balance in the account dropped from about $3.11 billion to $2.45 billion in December.
The new balance in the account followed the withdrawal of the equivalent of N15.631 billion to augment the shortfall in allocation available for distribution to the three tiers of government for the month. Former CBN Governor Lamido Sanusi Lamido and Dr. Okonjo-Iweala had argued that the account should be kept for a rainy period as this but state governors had their way in sharing the money. If there were enough funds in the account, it will not have been this bad for state governments.
State governors finding it difficult to finance their program went on a borrowing spree. The external debt profile of states has shown that Lagos State has the highest with a profile of $1.087 billion, followed by Kaduna State with a total of $234 million. Cross River State followed closely with an external debt profile of $131.469 million.
Other states with relatively large external debt are Edo $123 million, Ogun $109 million, Bauchi $87million, Enugu $62 million, Katsina $78 million, Osun $67 million and Oyo State $72 million. Based on the rising debt profiles of state governments, the Federal Government last year directed banks not to grant fresh loans to state governments until they got the relevant approval and clearance from the Federal Ministry of Finance.
Meanwhile, an analyst, Olusegun Adeniyi, in his latest write up also explain why states are indebted.
According to him, Nigeria has today ended in a big hole, adding that “Instructively, in Nigeria, what public officials intercept is not tax payer’s money but rather the allocations from oil rent that are usually shared every month in Abuja by the three tiers of government. While nobody should require any expert to tell him/her that the possibility of financial distress increases when a state depends on rent, whenever Nigerian politicians, at all levels, aspire for public offices, they would promise Eldorado that they are well aware would never be delivered. And to the extent that the people also do not demand any accountability of them, many of our public officials, including those who charter private jets all over the place, believe they can do whatever they want.
“Today, the tragedy of the Nigerian situation is reflected in the drama of non-payment of salaries for workers in the civil service of many states with Osun leading the pack. Workers in the state have gone without salaries for eight months! Now there are reports of religious and charity organisations donating foodstuff and other items in a manner that suggests that we are dealing with some destitute and not about 30,000 workers who are performing legitimate duties for which they should be paid. But Mr. Rauf Aregbesola is not the only Governor owing, he just happens to be the only one who is honest enough to admit it publicly. In fact, the situation is worse in some other states given the statistics contained in a recent document I obtained from the Nigeria Labour Congress (NLC) office in Abuja,” Adeniyi said.
By Ohia Israel