States Agree to New Conditions for Future Bailout Funds

Obinna Chima

A conditional Budget Support Facility to provide financial relief to state governments is being finalised by the federal government, the Ministry of Finance has said.

A statement from the ministry of finance on Saturday, explained that the proposed facility, aimed at providing support to overcome the current financial challenges faced by several states, would be subject to the states meeting a stringent 22-point reform agenda called the Fiscal Sustainability Plan (FSP).

The statement disclosed that the FSP was unanimously agreed by state governors during the National Economic Council meeting held on May 19 and it encompasses a framework of reform measures including the requirement to publish audited financial statements and budgets, biometric and Bank Verification Number (BVN) payroll review exercises to sanitise payroll costs, as well as limits on recurrent expenditure levels.

Other conditions listed include the requirement that states set and meet targets to enhance Internally Generated Revenue (IGR), the establishment of Efficiency Units to reduce overhead costs, privatisation of state-owned enterprises, domestication of the Fiscal Responsibility Act and limitations on securing further bank loans.

“On its part the federal government has agreed to develop IPSAS-compliant software for states to use, and to develop new bond issuance guidelines to ease access to the capital market for states wishing to fund developmental projects.

“Disbursements will be conditional upon states meeting their agreed targets and will be subject to monitoring and evaluation by independent monitoring agents. States that fail to meet the agreed reform targets will be excluded from further funding.

“The FSP mirrors the public financial management reforms currently being pursued at the federal government level and is expected to set the states on a path towards long-term fiscal sustainability,” the statement added.

Continuing, the statement quoted the Minister of Finance, Kemi Adeosun, to have also explained that the FSP represents an important programme of reforms that will develop best practice financial management across all tiers of government and will improve transparency and accountability.

“We are determined to attain financial discipline across government and implementing the FSP at state level will ensure alignment. The focus on increasing revenue, which is not limited to conventional taxes, but rather encourages states to explore opportunities in areas such as agriculture and solid minerals, is in line with our diversification objectives.

“The targets for cost management and improved efficiency will deliver value for money and will yield long term savings. Overall, we believe that the survival of state governments is essential to the economic recovery of Nigeria, specifically their ability to meet salary obligations,” she added.

In line with the federal government’s resolve to reflate economic activities in the country, the Central Bank of Nigeria (CBN) had last year disbursed a special intervention fund totalling N338 billion to 27 states in the country. This was sequel to President Muhammadu Buhari’s approval of a relief package designed to enable states pay workers’ salaries and also salvage their economic situation. Part of the relief package then was the CBN’s special intervention fund to be offered to states in the form of soft loans to be accessed solely for the purpose of paying the backlog of salaries. The approval of the special intervention fund was sequel to the decision by the National Economic Council (NEC) at its meeting of June 29, 2015, requesting that the CBN, in collaboration with other stakeholders, should appraise and consider ways of liquidating outstanding workers’ salaries owed by state and local governments.