At the weekend, the Federation Account Allocation Committee (FAAC) disbursed N1.196 trillion to the three tiers of government for August and September.
Will this end the financial crisis paralysing state and local governments’? Not quite, reports Seun Akioye
On the periphery, it reads like a piece of good news. But, for state governments, it is not yet time to shout halleluyah. Following a meeting of the Federation Account Allocation Committee (FAAC) at the weekend, N1.196 trillion was disbursed to the three tiers of government for August and September.
The Federal Government got N484,429,000,000 (52.68 per cent); the 36 states and the Federal Capital Territory (FCT) got N245,708,000,000 (26.72 per cent) and the 774 local government areas, including the six area councils of the FCT, are N189,431,000,000 richer.
To make up the N1.19 trillion windfall for the governments, N127,661,000,000 was distributed between the Federal Government (N19,149,000,000); states (N63,831,000,000) and local governments (N44,682,000,000) as proceeds of the Value Added Tax (VAT) for the two months.
Thirty five billion, five hundred and fourty nine million (N35,549,000,000) was shared from the Subsidy Reinvestment and Empowerment Programme (SURE-P) by all the tiers of government and an additional N7,617,000,000 from the continued monthly instalmental payment from the Nigeria National Petroleum Corporation (NNPC).
Before the weekend windfall, state governments had been complaining about the problem created by the delay in the payment of their dues from the Federation Account. They have also expressed concern about the drop in their allocations, which have seen them going through difficult times.
Even with the cash shared at the weekend, the days of shortfall in what states get are not over. By the admission of the Minister of State for Finance and Chairman of FAAC, Dr. Yerima Lawan Ngama, last month witnessed a drop in the amount of revenue which accrued into the Federation Account by N22.783 billion “due to the slight decline in crude oil production as a result of Force Majeure declared at Brass Terminal, maintenance issues and theft”. So, only the actual accruals into the Federation Account were shared for the two months.
The Federal Government failed to augment the monthly allocations, which fell short of the budgeted sum for the month. In the past, it used to make up for the shortfall.
The minister also said the NNPC made 27 monthly instalmental payment of N7.617 billion to FAAC as agreed. As a result, the corporation has only six more instalmental payments to make to offset all that it owes FAAC.
To make matter worse for the states, the Central Bank of Nigeria (CBN) has given a directive of 50 per cent compulsory public sector deposits. This, according to the Chairman of Finance Commissioners Forum, Timothy Odaah, is abnormal. He said the apex bank’s directive was “giving states harsh experience as banks are no longer eager to extend facilities to states without the say-so of the CBN among other negative effectives to the investment desires of the states and the fact that they now have to pay higher interest when they borrow from the money market.
Odaah said governors would present their misgivings on the compulsory deposit to President Goodluck Jonathan at the next National Executive Council (NEC) meeting to look for possible ways to bale the states out of economic difficulties.
Ekiti State Commissioner for Finance Dapo Kolawole told The Nation that the problem of revenue at the federal level has become an anathema sort of.
He said: “In the past, you can easily predict and based on that, you can plan that this is the average expectation from the Federal Government taken into consideration some economic indices, such as the oil output, the budget price per barrel but of recent, in the last two years, we have had challenges with the Federal Government in terms of what is distributed at the end of the month. The issue is not collection. The Federal Government had various times surpassed the budget revenue in terms of output, granted the leakages. The bench mark that was used for the budget at the federal level has been met and surpassed. Now, one is disturbed that at every point in time that we go to the Federal Allocation Committee (FAC) meeting, we have had to argue with the distribution of resources. Until the issues are resolved, the Federal Government cannot even take its own share of the money. So, the challenge is that we are still working hard to get the Nigerian National Petroleum Corporation (NNPC) to be committed to ensure they pay fully what they have sold on behalf of the federation. As at today, there is no proof that the budget has not been surpassed. These are man-made challenges and they can be surmounted.”
The state of things has led many to argue that the Federal Government is broke. Ngama said the country financial situation is not as dire as some many want to believe. For him, even the lingering revenue allocation shortfall crisis, which has caused untold panic in the states and caused delay of payment for capital and recurrent expenditures in most states, is not enough to say the country is broke.
Edo State Governor Adams Oshiomole, however, has a different view about the subject. He said the country’s economy is in “serious crisis,” a situation he described as unprecedented since the return to democratic rule in 1999.
Oshiomole said: “I don’t know if the Federal Government is broke but I know there is serious crisis and it is unprecedented in the history of this country. For the first time since 1999, allocations can no longer come as at when due to states. Whether we use the word broke or you deny the word broke, the truth is that there is financial crisis in Nigeria which has very serious national security implications.
“Because when states can’t pay salaries, Federal Government can’t pay salaries as at when due, and you can’t pay your contractors and your contractors will begin to retrench their workers, that is recipe for national disaster.”
Oshiomole was not the only governor to raise alarm over the grave implications of the current financial crisis. Ogun State Governor Ibikunle Amosun raised similar concerns. During the inauguration of the Mission To Rebuild Ogun State (MITROS) in Abeokuta, the state capital, the governor noted the almost impoverish level of most of the states of the federation, which had made the payment of salaries and normal running of government a herculean task.
Amosun said: “The situation became critical in August . As I speak, we are yet to collect anything from Abuja. Salaries are presently not being paid in several states in the country due to this development because many states rely on federal allocation to pay their workers. You will agree with me that this is causing untold hardship for Nigerians.”
Of course, most of those who gathered agreed with the governor; many of them were civil servants and if the current crisis continued, the consequences of a shortfall would bear directly on them and their immediate families.
Kwara State Governor Abdulfatah Ahmed believes that the cash crisis has grossly affected the delivery of democratic dividends to the people of the state. “It is already affecting our capital projects. We may not execute the budget, as it is already affecting us, as there is slow pace of various development projects,” he said.
The governor threw the puncher: “We will continue to borrow money to help us develop from one level to another, so as to embark on long-term capital projects, as you can’t always depend on your monthly allocation for some capital projects.”
Revenue Allocation shortfall
Not many Nigerians cared about what the Federal government made in terms of total revenue from oil sales, the Nigeria Customs Service and the Federal Inland Revenue Service (FIRS). Few also cared about what the state got from the federal allocation and how it was disbursed. In fact, to many Nigerians, state and federal budgets have become the yearly boring ritual. But, that changed in June 2013 when the first indications emerged that FAAC may be finding it difficult to meet up its monthly obligations to the states.
Since June, there has been persistent shortfall in the federal allocations shared between the three tiers of government. The shortfall was attributed to a decrease in the revenue accruable to the Federal Government from its three main sources of income. But revenue shortfall did not start in June, it has persisted throughout the year. For instance, while the Federal Government pegged expected monthly revenue at N702.54 billion in the 2013 budget, this expectation has remained largely unmet.
In January, the government earned N651.26bn, February N571.7billion, and March N595.71billion while the spate of depressing revenue continued in April with N621.07; in May, it was N590.77 billion. There was a brief respite in June when the budgeted revenue was surpassed with N863.0 billion as revenue. But whatever excess was recorded in June quickly evaporated with the lowest earning for the year coming in at N497.98 billion in July.
With the grim income being generated by the Federal Government to meet up with the budgeted allocations to the states, it augmented the shortfalls from the lush Excess Crude Account. But, in July 2013, CBN Governor Sanusi Lamido Sanusi told the House Committee on Banking and Currency that the Excess Crude Account had been depleted to a mere $5billion from the lofty $12 billion, a shortfall of $7billion.
By August, the Federal Government decided to stop the augmentation of the allocation to states and local government, a situation which has now become hydra-headed problems for most states that rely heavily on the federal allocation to fund their budgets. At a point, the FAAC owed the states about N336 billion.
The blame for the unpalatable fate that has befallen the states and local governments has been laid at the table of the NNPC. Oshiomole accused the Corporation of withholding the payment of about N2.3 trillion from the Consolidated Revenue Fund of the federal government. Earlier, a group named Forum of Concerned Members of FAAC alleged that the NNPC has withheld about N2.983trillion from the federation account. While the NNPC had denied that it owed the Federal Government, some stakeholders have come out to refute the claim. Last week, 11 governors on the platform of the All Progressive Congress (APC) insisted that the corporation indeed owed. Niger State Governor Babangida Aliyu challenged the NNPC to come up with proofs of its remittances while insisting the current crisis is linked directly to NNPC.
The non-remittance of the full revenue by the NNPC is not the only cause of the shortfall. According to the Minister of Finance and the Coordinating Minister of the Economy, Dr. Ngozi Okonjo- Iweala, oil theft which currently reduces Nigeria’s earning capacity by 400,000 barrels per day is to be blamed for the shortfall in government earnings.
On September 18, she also blamed the reduction in revenue on the ban on the importation of certain food items which has denied the Customs and Excise to collect import tax from them.
But Ngama was more forthright in his assessments of the cause of the shortfall: “This year’s budget is over bloated what we are collecting is far in excess of even what was budgeted for last year, but because the budget this year has been taken to a level that it is not supposed to be that’s why when there is a little hiccup the gap shows.”
States limp towards bankruptcy
The current financial crisis, no doubt, has impacted negatively on states and local governments in the country with many states delaying the payment of workers’ salaries or out rightly owing them. Contractors handling capital projects have also felt the pangs as paucity of funds persisted. One of the most affected states is Kogi. With a budget of N130, 996,844,415 for 2013, the state relies heavily on the federal allocation to implement its massive budget.
According to a senior official of the government who spoke to The Nation in confidence, the current crisis has left the state in a state of comatose and if nothing is done the state may go bankrupt.
“We have had massive shortfall since July as we had been paid between N3.2 and N3.5 billion. This is not a rich state at all and with the full remittance we were still struggling to meet up with our expenses. Our internally generated revenue is a mere N350 million and we have a salary wage bill which hovers around N2.9 billion monthly.”
The option for most states-Kogi inclusive -is to delve into the reserves to fulfill financial obligations like payment of salaries and paying for the daily running of government. Already, salaries of workers in Kogi state for the month of August was paid in the second week of September while some local council paid 50 percent of their workers’ salaries, others paid as low as 30 percent.
“I believe states have some reserves which are called intervention funds, I want to believe they will go into such funds in times like this. But we will be dead if the allocation crisis is not resolved soon, if we have to borrow N3billion to pay salaries every month, we are in big trouble,” the source said.
Kolawole said the problem has affected all the states of the federation, adding that Ekiti has had to take from its reserves “and sometimes we resort to borrowing at a cost” to pay salaries.
Kwara may have been compelled to take bonds from the money market. The state’s Internally Generated Revenue (IGR) since April is estimated at N800 million. With N94.4billion budget, Kwara is hard pressed to fulfill its financial obligations, especially its recurrent expenditures while capital projects have been badly affected.
Ekiti State Governor Kayode Fayemi signed the N97.6billion budget into law to “consolidate on all on-going projects in the state through people empowerment”. But faced with dwindling revenue from the federal allocation, the state’s resolve to increase its IGR to N14billion has increased. At a retreat, the deputy governor, Prof. Modupe Adelabu, conceded that available funds have become grossly inadequate, thereby urging the Ekiti State Internal Revenue Service (EKIRS) to re-strategise and effectively collaborate with all the 16 local government areas in the state with the aim of improving the IGR. With a federal allocation of between N2-3 billion monthly the Ekiti government is facing stricter cuts in its finances.
She said: “It is the belief of this administration that we are not destined to be poor as Ekiti State is blessed with abundant human and natural resources, capable of fast-tracking its development if adequately harnessed.”
But while Kano has continued to pay workers salaries and fulfil its other obligations, it is, however, working towards increasing its IGR to enable it pay its workers salary amounting to N3billion monthly. The Commissioner of Finance, Alhaji Abdullahi Mahmud Gaya, told The Nation that the state has not defaulted in any way because of the corporation of the people in paying their taxes promptly. The state which currently generates N2billion internally gets an average of N6billion from the federal allocation monthly.
But, it is not clear how long Kano will enjoy this financial Eldorado judging from the difficulties that may arise in implementing its N238 billion budget because its average federal allocation and IGR amounts to only about N108 billion and with the shortfall, capital projects may suffer. Gaya however expressed a cautious optimism. “We have not reached a stage whereby we cannot pay contractors, we cannot pay salaries; so it has not affected us as such, so definitely, all our hands are on deck to make sure that we generate more revenue from the state, because waiting for whatever is being given from the Federation account could be unreliable though the budget is already made.”
Amosun said his state does not owe salaries. He attributed the solvency of his government to the increase in IGR which hit N4 billion this year. “I must attribute this feat to the cooperation of the good people of Ogun State who paid their taxes promptly. We are one of the few states that have paid the August salary of their workers,” Amosun boasted.
But the state has become a big construction factory with massive projects dotting the landscape of its major and urban cities. It remains to be seen how the governor would implement successfully these projects with little or nothing from the federal allocation purse.
No end in sight
No one is sure when the financial crisis would end.
Experts said there is little hope for the country to return to its profitable ways as long as the indices, which necessitated the financial crisis, remain unresolved. Many have accused the Presidency of paying lip service to blocking corruption and reducing government spending by cutting down on the over bloated Executive. Also, the government has found no answer to the problems of oil theft, which continues to erode 400,000 barrels of oil per day thereby grossly limiting government revenue.
The problem of over dependence on oil and the massive corruption in the petroleum sector as exemplified by the rot in the NNPC still remain “action plan” with government doing nothing to pull the drift. Nigerians are bearing the brunt.