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FG defers N10.9bn loan repayment by States, rules out another bailout

By on April 23, 2016

The Finance Minister, Mrs. Kemi Adeosun has said that the federal government would not make deductions from states’ Federation Account allocations for the month of March on their restructured loans so as to allow them pay their workers’ salaries.

Briefing journalists yesterday at the end of a meeting of the National Economic Council (NEC) which held at the State House in Abuja, Adeosun said that the decision to stop the deductions was informed by the fact that states do not have enough resources to meet their obligations.

She, however, ruled out a second bail out for the states, stressing that the moratorium should allow the states to meet their obligations.

According to her, low receipts from crude oil sales means that there is insufficient revenue to share, thereby making it harder for states to survive.
She said: “This is an update on the financial situation in the states: it was discussed extensively that currently the Federation Account receipts are among the lowest that has been seen in recent memory.

“We are looking at N299.7 billion this month (for March allocation) and that is because of the very low oil prices recorded in February and January, if you remember oil prices went as low as $28 and $31 and that has affected receipts to the Federation Account.

“As a result of which I approached the president at the behest of the state governors that we defer the loan deductions from the Federation Account entitlements and the aim of this is to ensure that we support the states through this difficult period to enable them meet their salary obligations.

“The government is very committed to stimulating this economy and recognises that the ability of states to meet salary obligations is very important to getting the economy moving again, and so to that end, the president approved that deferral.”

Adeosun said states had been asked to submit financial data that would allow the federal government to work on a model and predict how much support in terms of loan deferrals to be given to get through this period until the economy begins to recover.

She said: “I want to emphasise that this is not a bailout, it is a deferral, postponement of deductions rather than a bailout just to allow the states to get the cash they need to meet their salary obligations.”

The minister said all the state governments endorsed the request to provide financial data and endorsed the request to work on biometric data and other initiatives to cleanse out fraudulent entries on their payrolls.

She said: “You might call them ghost workers but it is being done at the state level very aggressively and the efficiencies that the state governors have already committed to, they all endorsed those initiatives as part of the support that we are trying to put in place.”
Adeosun said the approval she got from the president to defer the deductions was for the March allocation that was shared yesterday.

“The approval I have is for the current month (March) but with a proviso on the fiscal reforms that would be taken by the states. What we discussed is that the current situation in the economy requires some action and what we need to do is to understand the financial profile of states in detail, so that we can understand how long we need to support them with loan deferrals.”

The minister also allayed fears that the policy would have a negative effect on the economy.
“On the effect of the deferrals on the economy, I think I will be swift to ask what is the effect of non-payment of salaries on the economy? That for us is really the issue. We have to put money into people’s pocket so that people start spending just to get the economy moving.

“Nobody stimulates the economy by austerity but by spending. So in some states, as you know, the state government is the highest employer of labour, so if the state government is unable to pay, nothing happens.

“We have prioritised getting the states back into good financial health. Now, part of that is this commitment to fiscal sustainability and that is why we have asked the states to commit to cleansing their payrolls, commit to efficiency, and maximising their internally generated revenue.

“We have asked them to give us their financial data so that we can work together to create a financial module and understand what government needs to do to support the states.
“Of course we are borrowing, but we have got to make sure that we are borrowing to support the states that are fiscally sensible and prudent in their managing money.

“So the answer is that we have a month (March) guaranteed, but we are asking for information from the states to enable us build a module so that we would know if it is three months, six months or however many months to supplement the shortfall to ensure that within reasonable parameters a majority of the states can pay salaries.

“And that is taking into account that different states have different obligations and different profiles, but the idea is to support them to be able to pay,” she said.
At the NEC meeting, Adeosun said she presented the report on the balance in the Excess Crude Account (ECA), which she said stood at $2.75 billion.

She also said that she gave an account of interest that had been received since the last update.
She said: “The second update given was on the constitution of the search committee for the board of the Nigerian Sovereign Investment Authority (NSIA; Sovereign Wealth Fund).

“I gave that presentation and nominated six persons from the six geopolitical zones, four men and two women, who would search for board members for the Nigerian Sovereign Investment Authority.”

Also, a statement yesterday from the finance ministry said: “The Federation Account Allocation Committee (FAAC) meeting which took place today (yesterday), presented the lowest FAAC in over five years, with less than N300 billion in revenue driven by the impact of the historically low oil prices in January and February.

“This sum also reflects a seasonally low collection period for the Federal Inland Revenue Service (FIRS).”

The ministry said with about 27 states currently experiencing challenges in meeting their salary payments and in response to the precipitous drop in revenue, obligatory repayments due to the federal government from the states in respect of their restructured loan obligations are being deferred for the current month (March allocation).

“The deferral amounts to a total of N10.9 billion. This is to ensure that the states are in a better position to meet their salary obligations. We are not able to guarantee that all states will be able to meet their salary obligations, as each state’s situation is dependent on its own cost profile and other obligations it may have, but this initiative is to better position them to do so,” the ministry added.

It said all states will receive the relief this month (for March allocation), but noted that further deferrals will be subject to the agreement of a fiscal restructuring plan to be prepared by each state with clear measurable objectives.

“The Federal Ministry of Finance is keen to ensure that the programme of financial discipline being driven by the federal government is replicated in all tiers of government, including elimination of payroll fraud and increased spending efficiencies in overheads.

“Enhanced financial transparency by the publication of audited accounts and submission of debt profile may also be required. Moving states towards fiscally sustainable practices is a key objective of the federal government to ensure that Nigeria recovers from the current economic challenges,” the ministry added.

A statement from the vice-president’s office further said that Prof. Yemi Osinbajo, who chairs the council, informed the states that the president will continue to review the situation in the states on an ongoing basis and take appropriate relief measures where necessary and possible.

At yesterday’s FAAC meeting, Adeosun, who was represented by the permanent secretary in her ministry, Mr. Mahmoud Isa-Dutse, said there was a N39.0 billion drop in revenue from the N338.8 billion that was shared in February.

She added that the shared amount comprised the month’s statutory revenue of N232.6 billion, noting that there was an exchange gain of N2.9 billion which was proposed for distribution.

“Therefore, the total revenue distributable for the month of March, including VAT of N64.2 billion is N299.7 billion,” she told the finance commissioners of all the states present.
Adeosun also said the N6.3 billion that was refunded to the Federation Account by Nigerian National Petroleum Corporation (NNPC) was also shared.

Giving the breakdown of revenue among the three tiers of government, the finance minister said that the federal government got N109.1 billion,
representing 52.68 per cent, while states got N55.3 billion, representing 26.72 per cent.
The local governments, she said, received N42.7 billion, amounting to 20.60 per cent of the amount distributed.

She said N19.75 billion, representing 13 per cent derivation revenue was shared among the oil producing states.

Adeosun also said during the month under review, the country generated N153.4 billion as mineral revenue and N79.3 billion as non-mineral revenue, representing
an increase of N23.0 billion and N14.83 billion respectively from what the country generated in the preceding month.

She pointed out that acts of vandalism on oil pipelines, among other factors, continued to negatively impact on oil revenue generation.
According to her, there was a significant decline in income from Petroleum Profit Tax (PPT) and Companies Income Tax (CIT).

She however reiterated government’s stand on the diversification of the economy, stressing that it was on course and that all measures were being taken to
achieve the goal.

Also speaking at the NEC briefing, the Nasarawa State governor, Mr. Umaru Tanko Al-Makura said the council reconstituted the board of the Niger Delta Power Holding Company (NDPHC) for effective representation.

According to him, there was a unanimous acceptance of the recommendations and reconstitution of the board to include one governor from each of the six geopolitical zones.
He said: “For the North-central zone, we have the Plateau State governor to represent the region on the board; for the North-east zone, we have the Adamawa governor; the North-west will be represented by the Kebbi State governor; South-east by the Anambra State governor; South-west by the Lagos State governor; and the South-south by the Edo State governor. The committee has since been inaugurated by the vice-president.”

He said the issue of power sector was extensively discussed at the meeting in line with the priority this administration places on improving electricity supply and the challenges being faced.

“We also discussed the bailout matter on which the Central Bank of Nigeria (CBN) governor gave an update about those states that have been able to access the funds. This was put at N689.5 billion which has been disbursed as bailout for the payment of salaries so far. An additional N310 billion was disbursed as ECA-backed loans to the states,” he clarified.

The Corps Marshal of the Federal Road Safety Commission (FRSC), Mr. Boboye Oyeyemi, who also spoke after the meeting said the council also approved the Nigerian Road Safety Strategy Document for 2014-2018.

He said the document served to address the current overlaps and streamline the roles and responsibilities of all participants in order to maximise the benefits of investment in road safety management activities. The strategy document was endorsed by NEC at yesterday’s meeting.

According to him, it also discussed the National Road Safety Council with the vice-president as the chairman with representatives from two geopolitical zones and other critical members.