“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.” –#Soludo
Eighteen out of the thirty-six states of the federation are technically bankrupt. This is because they have mortgaged their federation account allocations to contractors by signing irrevocable payment orders with various banks. As a result, payment to contractors and other debt instruments are deducted at source and have become first line charge on their lean resources.
The internally generated revenues of these states are also not enough to meet their obligations so they owe workers several months of unpaid salaries.
The states owing workers, according to the Nigeria Labour Congress are #Abia, Akwa Ibom, Bauchi, #Benue, Cross River, Ekiti, Imo, Jigawa, Kano, Katsina, #Kogi, #Ogun, Ondo, Osun, Oyo, Plateau, #Rivers and Zamfara.
This is not the first time states owe workers. In 2003, 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 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.”
Reacting 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 described the indebtedness as a bad omen, more so, where there are no infrastructure in place to underpin their debts.
Gwarzo therefore urged the affected state governments to take advantage of equities, bonds or mortgage bond securities in the capital market to develop their states’ infrastructure. He urged governors to explore the opportunities available in the market to deliver infrastructural development to their people, saying it is better to borrow to meet infrastructural needs than to be content with just paying salaries.
“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 have blamed the inability of states to pay salaries on their over-dependence on allocation from the federation account. Thy 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.
Effect of falling oil prices
Specifically, #analysts at Cardinal Stone, in their outlook for 2015, predicted that the low price of crude oil in the international market will expose the structural deficiencies in the Nigerian economy and will plunge a number of states into a quagmire. They said: “With oil contributing about 70 per cent of Nigeria’s revenue, the drastic drop in oil price will significantly curtail government revenue and invariably, expenditure.
Also, with government (state and federal) as the biggest employer of labour in the formal sector, the expected pressure on state government finances has negative implications for income. Also, analysts at PWC warned that tougher times might still be ahead, especially with the persistent low crude oil prices. They said, “State governments could struggle to borrow from financial markets to pay their workers.
Some highly-indebted states may miss planned interest payments on their debt. Continuing, the analysts stated that the finances of majority of the states would be in a perilous state, as the declining value of the #Naira will make it difficult for most of them to finance their external debt, which makes up a quarter of their overall debt stock.
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.
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