The Bailout and Fiscal Viability of States

It is no longer a hidden secret that the federal government of Nigeria has decided to come to the rescue of most States that are unable to meet up in its state prerogative functions hence the recent intervention by the federal government to help states out of financial difficulties is a perfect reminder that the country needs fundamental attitudinal and structural reforms to make the federating units economically sustainable.

As states in Nigeria laboured under the yoke of unpaid salary backlogs, the federal government came to the rescue recently. It approved some multiple intervention packages totalling over N800 billion to help broke states settle salary arrears and, perhaps, avert a ubiquitous social pressure that was developing into a national danger.

The intervention included more than N400 billion shared between the federal and 36 states governments, which the central government said was from interests accruing from the Nigeria Liquefied Natural Gas project; a soft loan package; and a debt relief programme designed by the Debt Management Office to enable states restructure their commercial loans and extend the life span of such loans while reducing their debt-servicing costs. Although, the federal government also borrowed some N473 billion to pay its own workers.
The bailout by the President Muhammadu Buhari government might have staved off the prospect of a massive labour upheaval and eventual national instability. But it does not answer the fiscal viability question in the states, or resolve the resource efficiency issue.
Retaining the current resource control method that awards virtually everything to the federal government will only further financial depression in the states and perpetually precipitate conditions that will make states go cap in hand to the central government. The country’s constitution gives the federal government exclusive control over virtually all natural resources. And money in the Federation Account, which holds all revenues accruing to the country, are shared thus: federal government 52.68 per cent; the 36 states governments 26.72 per cent; and the 774 local government councils 20.6 per cent. This system creates avenues for graft by inspiring less attention on state revenues, and intensifies the ignominious status of the states as mere appendages of the federal government.
To ensure the fiscal viability of the federating units and avoid a future occurrence of the near bankruptcy that forced the extraordinary bailout for states, in the short run, leaders at the second tier of government must block financial leakages. They must do a proper auditing of their expenditure and downsize and right-size, where necessary, to ensure they have the right number of staff. And they must embark on aggressive revenue generation drives.
Tax is the mainstay of government revenue everywhere in the civilised world. The states in Nigeria must develop their revenue bases and build infrastructure that would enable them generate tax.
In the long run, Nigeria must change the current resource ownership and control structure that empowers the federal government to appropriate virtually every natural resource capability of the states. This system has encouraged redundant capacity and waste at the second tier of government, apart from denying states resources for fair economic competition. Many states today have important economic endowments that are either unused or underutilised and, consequently, wasted because the state governments do have the right to exploit them, and the federal government is too engrossed in crude oil in the Niger Delta to consider the exploitation of such resources. This is incongruous with development. It has killed creativity in the states and encouraged indolence.
The constitution of the country needs to be amended to devolve more economic powers to the states, to enable them control and exploit their natural resources and pay tax to the federal government. This is the standard in most successful federalisms – and indeed, democracies – of the world.
With the necessary changes in attitude and structure, the states can develop their economic capacities well enough to meet most of their recurrent expenditure from internally generated revenue, while deploying their federal revenue allocations to capital projects.
However, many feel there is no chance that the country will achieve any fundamental restructuring of the resource control framework under the Buhari administration. This is despite the fact that a major segment of the All Progressives Congress coalition, the current ruling party, were known advocates of fiscal federalism and resource control by the federating units.
Buhari would be expected to lead the way in a vital effort to ensure that the country rises above politics to undertake reforms that would guarantee greater viability, even in an era of hyper-partisanship.

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