As FG Moves To Recoup Budget Support Loans

As the Federal Government moves to recover N614 billion loans extended to states under the budget support facility programme, some governors are already jittery, especially following their failure to abide by the 22-point specification that guided the credit facility. Abdulwahab Isa reports

Between 2016 till date, the 36 states of the federation had received two levels of financial support from government at the centre.

These were necessitated by acute insolvency in their financial position occasioned by huge debts.

Save for Lagos, Kano and Rivers states, majority of others practically live on borrowing to function fully.

Some of the challenges faced by majority of states include huge debt obligations, unpaid salaries, and pension in arrears.

To relieve them of the burden, the Federal Government created financial bailout windows with the Paris Club Refunds and Budget Support Loans.

The Paris Club Refunds are the longstanding claims of over-deductions from Paris Club debts made from state government accounts from 1995 to 2002.

The refunds, authorised by President Muhammadu Buhari in 2016, was to cushion the plight of salary earners and pensioners.

These funds had been over-deducted from the states’ FAAC payments to offset foreign loan contracted by states over the years. The Paris club refunds were paid out in tranches to all the states. However, they never  counted as loans as states were entitled to them.

The second bailout, identified budget support loans, was approved in 2016 for states with a repayment clause attached to it.

A total sum of N614 billion conditional loan facility was extended to be repaid after two years. The Ministry of Finance, the Debt Management Office fashioned the conditions upon which its disbursement was carried out. .

Perspective

Essentially, the loan package was part of Federal Government efforts to reset the  economy that entered recession in 2016. 

The idea was to put more money in the hands of states, to enable them liquidate accumulated workers’ salaries, pension obligation and contractual debt.

At a meeting with state commissioners of finance in Abuja to roll out the scheme, Minister of Finance at the time, Mrs. Kemi Adesoun, was explicit on scope of the loan.

She said the loan was secured from the private sector to state governments through the issuance of bonds.

“The budget support facility is a loan, repayable after one year by states. It’s not a grant,” Adeosun said.

Budget support loan to states was tied to 22-point Fiscal Sustainability Plan (FSP). 

The conditions under which the agreement was structured was unanimously agreed by state governors during the National Economic Council meeting that  held on May, 19, 2016.   

The FSP highlighted five key strategic objectives, which include improving accountability & transparency; increasing public revenue; rationalizing public expenditure, as well as improving public financial management and sustainable debt management.

On their part,  the  states were expected to undertake  fiscal reform action plan similar  to public financial management reforms being undertaken by the Federal Government.

They include biometric capture of all civil servants, establishment of an efficiency unit within each state, implementation of continuous audit, improvement in internally generated revenue (IGR) and other measures to achieve sustainable debt management. Access to the proposed facility will be directly tied to the attainment of the fiscal reform milestones under the FSP.

“This is not a bail out, but rather a necessary short term intervention that is conditional on a comprehensive fiscal sustainability reform plan, and which is ultimately intended to set the states on a path towards fiscal sustainability and to support the federal government’s drive to reflate the economy, ” Adeosun noted.

Rules, violation

At the early stage of implementation, the Ministry of Finance set out a total of 22 conditions contained in the arrangement.

Some of the conditions spelt out are that a restriction would be placed on states borrowing from commercial banks; all states must publish their financial statements, budgets and the quarterly budget performance; state’s finances would no longer be shrouded in secrecy and items like security vote, feeding, travel among others would be made visible. 

Other conditions attached were that states would review obsolete revenue laws and tariffs, and redefine internally generated revenue to include non-tax revenue sources that would reflect local opportunities in each state, especially in solid minerals.    

In the same vein, the states were directed to set targets for recurrent to capital expenditure; set target for personnel costs as a percentage of the total budget; clean up their payroll by eliminating ghost workers as well as set up efficiency unit to reduce the cost of governance. These conditions at best were observed by majority of states in breach. 

Each state was granted N17.5 billion of the budget facility loan.  Regrettably, most states procured the loans without meeting key basic conditions spelt out.  Allegations of bailout diversion have been rife across states.  Salaries are left unpaid till date, pensioners are still groaning while contractors that handled projects in states are in perpetual lamentation.

The Vice- President, Professor Yemi Osinbaj,  who heads the National Economic Council, had in an unmistakable voice declared to states that the loan was repayable at an interest rate of nine per cent over a 20-year period and that  it was “solely for the purpose of paying the backlog of salaries.”

Panic over pay back

As it is today, there is unease across states,   given that the larger portions of budget support loans were frittered into unproductive ventures.  Most states never implemented a single provision of the 22 conditions designed as basis for the loans.

Last week, the Federal Government hinted of its intention to recoup from 35 states, the sum of N614 billion of the loan.

The declaration jolted some governors as many states are still battling to pay the new minimum wage increase.  Majority of states are lock up in a battle with the leadership of labour over     new wage minimum wage.

Minister of Finance, Budget and National Planning, Zainab Ahmed, confirmed government’s intention to recoup the loans while briefing State House Correspondents after the National Economic Council (NEC) meeting presided over by the vice-president.

To fast track the refund process, the minister said NEC had agreed to set up a committee comprising members of the Nigerian Governors’ Forum (NGF) that will consult with the Central Bank of Nigeria (CBN) and the ministry of finance to finalise modalities for commencement of the repayment. 

Ahmed said each of the affected 35 states received N17.5 billion as bailout.

The minister of finance briefed NEC on the progress of the facility, detailing how the Federal Government has made a total of over N614 billion available to 35 states being N17.5 billion each.

Way out

The only way out now is for state government to look inward, tap into abundant opportunities for additional revenue sources to augment monthly subvention from federation account.

The Revenue Allocation and Fiscal Commission (RMAFC) during several interface with the representatives of states presented a robust roadmap on untapped potential lying untapped in each state. There isn’t any better time than now to maximally utilize additional sources of revenue at the disposal of states.

Last line

Loans are contracted on binding agreement. It is, therefore, expedient for the Federal Government to apply the relevant portions of the agreement to recoup the loans from states.

https://www.newtelegraphng.com/2019/08/as-fg-moves-to-recoup-budget-support-loans/