Another State Level Fiscal Bailout?

Eze Onyekpere

As a country, we have wasted many opportunities of dialogue, reasoning and acting in accordance with the dictates of empirical evidence. We had sufficient oil rents, which encouraged the muddle through approach to policy and decision making. Several conferences on the constitution and restructuring of the affairs of the state have been held while the outcomes gather dust on the shelves. Elections were fought and won, not on what candidates had to offer; but on primordial sentiments and parochial calculations that led us to always come out with our third to fourth eleven as leaders. But civilized humanity has always been led by its first eleven or at worst, the first eleven were allowed to influence policy choices and decisions.

With the drying up of oil rents and the federal, state and local governments facing the reality of raising resources to provide services and fulfill the basic state obligation of securing lives and property, it is time and an opportunity to review those unworkable ideas that we have always taken for granted; interrogate them and reason together for feasible policy frameworks and alternatives.

Posers upon posers: Do we need the 36 states structure? How do we hold elected representatives accountable, especially at the state level? What are the alternatives to oil rent and how do we activate this alternative?

This brings me to the cry of states that they face imminent collapse as they are unable to maintain basic services and pay their workers. Reckless borrowing and management of state resources in a way and manner that was clearly fiscally irresponsible has been the order of the day since the return to civil rule in 1999. The state governors account to no one and see themselves as lords over the people. As I write, many of the governors that are unable to pay salaries have, apart from commissioners, appointed over thirty aides. Some bought brand new Sport Utility Vehicles of foreign specifications for the members of their State Houses of Assembly, traditional rulers and commissioners. Essentially, they have been reveling in frivolity, squander-mania and fiscal irresponsibility at the expense of the people. Despite the decreased resource profile, the elected representatives at the state level have refused to accept a decreased standard of fiscal rascality. No, they insist on their continued lifestyle of opulence and extravagance.

The foregoing recalls the earlier bailout given to some states by the Federal Government, which involved the sharing of the proceeds of LNG earnings, restructuring of debts due to banks to extend their lifespan and a soft loan package. It was the contention of the author of this discourse then that this kind of bailout creates perverse incentives by rewarding bad fiscal management and behavior. I had posited that it was an opportunity to review the composition, management and structure of the fiscal management of states and using the findings of major public finance management tools and review to restructure state fiscal management in accordance with best practices.

Participating states who agree to undergo the reform exercise will qualify for the bailout. Apart from providing resources to the states, this would have positioned them on the path of sustainability to avoid a relapse to the begging bowl in a couple of months. Without being a prophet, I prophesied that the federal bailout in its current form would see the states coming back with a bigger bowl after a couple of months. This was just drawing from a normal trend analysis, which considered that the price of oil was not about to go back to $100 per barrel and the fiscal crisis faced by states was deep and needed a structural transformation approach to exit.

Today, we have Governor Aminu Masari of Katsina State calling for a budget support programme for states that should go beyond the bailout packages. He considered the bail-out package as ad-hoc and unable to solve the deep rooted fiscal challenges. As reported in a daily newspaper, the scenarios he painted include raising bonds of 20-30 years maturity, borrowing generally, ways and means and inviting the World Bank, et cetera.

Masari described Nigeria as a “planless” nation. He complained that Nigerians were getting everything free and that now is the time for them to pay back. I do not see how the scenarios painted by the governor can be a long term solution to the resource deficit. Every reasonable society leaves wealth and resources for the coming generation. In our own case, we plan to saddle the next generation with debts. Do you take money for budget support to pay salaries and allowances and expend on recurrent expenditure? How would you pay back in the future in terms of the stock of current capital or capital to be created by the budget support which will enable repayment in future?

Every state governor, who merits the appellation of the leader of his people, must go back and have deep engagement and dialogue with the people on the state of their finances. Such engagement will need to answer and resolve many questions. How much comes in from the federation account, Internally Generated Revenue and other sources? How much is needed to service the bureaucracy? Where are the points that the state can cut down on unnecessary expenses? What is the state’s developmental vision and how much will it cost to drive the vision?

Yes, the people and their state governor need to tell themselves the truth: Is the state feasible or should it be merged with an existing state? Indeed, what was the rationale for the creation of the state? How can that raison d’être be realized in the current circumstances? What can be done to ensure that the people fund their state if they insist they need a state? The engagement will not be an easy one. It involves a lot of soul searching and truth telling, which will provide answers to sustainability at the end of the day. It will surely come out with answers on the quantum of resources that will be dedicated to the political elite and how the people can hold their government to account for the new resources to be entrusted to it. In this dynamics, the institutionalisation of monthly, quarterly, half yearly and yearly accounting on accrued resources and their expenditure will become a routine of governance.

In the unlikely event that the Federal Government decides to intervene again, an outline of the basic steps to such intervention will include a comprehensive public expenditure management review of the state which will show the SWOT analysis of the system and come up with relevant short, medium and long term fixes. And politics must not trump the fiscal reforms. The states should be seen as committed to the reforms while resources will be disbursed in installments based on achieved milestones.

The state governments must be seen to have engaged the people through town hall meetings and community based associations to get their consent to any proposed borrowing. The State Houses of Assembly have failed woefully in the performance of their approval and oversight function over public finances. Painful decisions need to be taken. We cannot contemplate continued borrowing for recurrent expenditure and some members of the political elite may have to take a haircut in their emoluments and allowances. It will also be imperative for the states to consider aggressive recovery of looted funds because contrary to what Governor Masari stated, the people did not have access to free things. The political elite ate the corn and the seeds.

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