A N90 billion loan, which the Federal Government believes will help the states in their bid to be less dependent on the monthly handout from the Federation Account, is on the way.
The loan will be given over one year and will be extended to the states after they have met 22 conditions. It will be repaid over a period of time. It is not a bailout, Finance Minister Kemi Adeosun said at the Stakeholders Meeting held with Commissioners for Finance on the Fiscal Sustainability Plan (FSP).
“The amount of the loan is N50billion for three months to be shared across the 36 states, including FCT and then N40billion for nine months,” she said.
The idea, “is to tie states over for a year so that they rebalance, which is an average of about N1.3billion per state for the first three months and N1.1billion for the next nine months,” Mrs Adeosun said.
According to her, “it is a loan and it is fully repayable although it has a secured tie against future dividends, revenues and any amount that government might owe the states”.
On the fate of the federation account with this new line of credit to the states, the minister said: “We are not suspending the federation account; federation account will still be there, but we expect the federation account to recover and as it recovers, we will withdraw the need for this support.”
The state governments, she added, “have agreed to these conditions and the lenders have agreed to make an advance to them to help them through this period.”
The loan is a bond and it has been guaranteed by the Federal Government and it is being issued and sourced in the normal way bonds are sourced.”
Adeosun stated that all the “governors unanimously approved the plan; the commissioners endorsed the plan; they know it is going to involve a lot of work in some cases.”
Some of the conditions that the states have to meet include that “they have to clean out their ghost workers, set up efficiency units, reduce their recurrent expenditure, publish their accounts and also publish their budgets”.
The minister said: “There are lots of difficult conditions but by paying the price the governors and the commissioners recognise that these reforms are necessary if they want states to be fiscally sustainable.”
The Fiscal Sustainability Plan (FSP) highlights five key strategic objectives. These include: to Improve Accountability & Transparency; Increase Public Revenue; Rationalise Public Expenditure; to Improve Public Financial Management and have a Sustainable Debt Management profile.
By granting the loan, the minister explained, the Federal Government “wants to make sure that within each state, whatever local advantage they have, they exploit it. So, if there is no private sector, for example, to lend taxes from, maybe there is agricultural produce that can be developed and the state can use that to generate revenue. Maybe there are natural resources which can be exploited and the state could use that to generate revenue. So, what we are saying is that every single state is a centre of prosperity.”
She called on all the states to “go and look inward and work to improve Internally Generated Revenue (IGR), have the discipline to make sure that they can pay salaries and clear out ghost workers, remove wasteful spending and, as the economy improves, state government will actually improve as well and grow towards the future because Nigeria’s economy is actually 36 states economy plus FCT”. “There are no federal people; everybody lives in the state and every state has to be viable and that is what fiscal sustainability plan will do.”
The FSP, Adeosun said, “will begin the process of guaranteeing that states take responsibility for their financial viability. Pursuing the objective that IGR rather than Federal Allocation, should be their principal focus of revenue is a fundamental change in approach,” she added.
The conditions that the states have to meet before they can access the loan are:
Publish audited annual financial statements within 9 months of financial year end.
Introduction and compliance with the International Public Sector Accounting Standards (IPSAS).
Publish State budget online annually.
Publish budget implementation performance report online quarterly.
Develop standard IPSAS compliant software to be offered to States for use by State and Local Governments.
Set realistic and achievable targets to improve independently generated revenue (from all revenue generating activities of the State in addition to tax collections) and ratio of capital to recurrent expenditure.
Implementation of targets Implement a centralised Treasury Single Account (TSA) in each State.
Quarterly financial reconciliation meetings between Federal and State Governments to cover VAT, PAYE remittances, refunds on Government projects, Paris Club and other accounts.
Share the database of companies within each State with the Federal Inland Revenue Service (FIRS). The objective is to improve VAT and PAYE collection.
Introduce a system to allow for the immediate issue of VAT / WHT certificates on payment of invoices. Review all revenue related laws and update of obsolete rates / tariffs.
Set limits on personnel expenditure as a share of total budgeted expenditure.
Biometric capture of all States’ Civil Servants will be carried out to eliminate payroll fraud.
Establishment of Efficiency Unit.
Federal Government online price guide to be made available for use by States.
Introduce a system of Continuous Audit (internal audit).
Create a fixed asset and liability register.
Consider privatisation or concession of suitable State owned enterprises to improve efficiency and management.
Establish a Capital Development Fund to ring- fence capital receipts and adopt accounting policies to ensure that capital receipts are strictly applied to capital projects.
Domestication of the Fiscal Responsibility Act (FRA).
Attainment and maintenance of a credit rating by each State of the Federation.
Federal Government to encourage States to access funds from the capital markets for bankable projects through issuance of fast- track Municipal bond guidelines to support smaller issuances and shorter tenures.
Full compliance with the FRA and reporting obligations, including: No commercial bank loans to be undertaken by States; Routine submission of updated debt profile report to the DMO. – The Nation.
