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FG secures N90bn conditional loan for states

By on June 16, 2016

The Federal Government on Tuesday announced that it had secured a N90bn conditional loan from the private sector for state governments through the issuance of bonds in the bond market.

The Minister of Finance, Mrs. Kemi Adeosun, who disclosed this during a meeting with the commissioners of finance of the 36 states of the federation, stated that the loan would be given for a one-year period.

The minister explained that the money to be released to the states was not a bailout like the one it gave out last year, but a loan that was guaranteed by the Federal Government to be provided by the private sector through bond subscription.

She said based on the agreement with the state governors and the commissioners of finance, N50bn would be released in the first three months, where each of the 36 states would get about N1.3bn.

Thereafter, she noted that N40bn would be released over a nine-month period as the second tranche through the bond market, with each state expected to receive the sum of N1.1bn.

Adeosun pointed out that the release of the funds was tied to very stringent conditions that were requested by the private sector investors.

These conditions, according to her, have been captured in a document, which she refers to as the Fiscal Sustainability Plan.

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

Others are that the states will review obsolete revenue laws and tariffs; and redefine Internally Generated Revenue to include non-tax revenue sources that will reflect local opportunities in each state, especially in solid minerals.

In the same vein, the states have been directed to set target limits for recurrent and capital expenditures; set target for personnel costs as percentage of the total budget; clean up their payroll by eliminating ghost workers; as well as set up Efficiency Units to reduce the cost of governance.

Adeosun said, “This is a loan that we have secured from the private sector and it has conditions attached to it. So, it’s actually a loan that is going to be repaid. It’s not a bailout. When you want to borrow money, the lenders set the conditions and these conditions are very stringent conditions; there are 22 of them and the states have signed up to them.

“The governors unanimously approved the plan; the commissioners approved the plan and it’s going to involve a lot of work in some places. There are a lot of tough conditions. So, the governors and commissioners recognised that these reforms are necessary if they want the states to be fiscally sustainable.

“The amount of the loan is N50bn for three months to be shared among all the participating states, which are 36 so far; and then, N40bn for nine months.”

She added, “The idea is to tie the states for a year so that they can balance their portfolio, which is an average of about N1.3bn for the states for the first three months; and then, N1.1bn for the next nine months.

“It’s a loan and it’s going to be fully repaid because it’s been secured with future dividends, revenues and any amount that the Federal Government may owe the states.”

When asked if the directive to the states indicated that the country now had fiscal federalism, the minister replied, “Every state must be viable. We cannot have a situation where states are so dependent on the Federation Account for their revenues and once the Federation Account is down, they cannot survive.

“We have to make sure that within each state, whatever local advantage they have is exploited. So, if there is no private sector to collect taxes from, maybe there are agricultural produce, which can be developed and the states can use that to generate revenue.”

 

[Punch]