State Governors begin secret talks for fresh bailout

Posted by News Express | 8 February 2016 | 2,748 times

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Nigerian state governors are seeking a new round of bailout from the Federal Government, less than a year after the previous one, sources privy to the discussions have disclosed. President Muhammadu Buhari’s administration announced a bailout for several struggling states six weeks after being sworn in, of as much as $3 billion to help them pay a backlog of workers’ salaries.

The revelation came against the background of strong indications that many state governments will run into funding crises before the end of 2016.

Economy and finance experts who gave this hint over the weekend are concerned that in spite of the projected drop in revenue accruals from the Federation Account and huge debt overhang, the cumulative financial figures of state governments has shown that about 12 states made huge increases in expenditure totalling N697 billion in their 2016 budget.

The affected states did not give any indication that they will fund their budgets through borrowing except that they intend to increase their Internally Generated Revenue (IGR), which over the years has consistently fallen short of projections.

Managing Director, Financial Derivatives Company (FDC) Limited, Mr. Bismark Rewane, in the latest monthly breakfast note presented at the Lagos Business School, said poor capacity in generating IGR as seen in 2015 in many of the states implies that another bailout maybe imminent if this IGR capacity remains unchanged.

Also, most of the states are already indebted to banks so much that they can no longer borrow given the debt management option already in place for them.

For instance, it has been reported that Imo State is owing over N100, billion prompting the Central Bank of Nigeria to place the state on the “No Borrowing list’, meaning that it will no longer borrow from any bank in Nigeria and no approval will be given to them for external loans at the moment.

Available records show that Sub-National debt stock at the state level amounted to N1.7 trillion in 2015 with Lagos state having the lion share of 35.8 per cent, Kaduna and Edo states trailed with 6.7 per cent and 5.0 per cent respectively.

According to the FDC’s boss, state debt will also rise in 2016 as news flows currently suggest that more states are planning to secure loans.

“However, the viability of many of these states remain a concern as their capacity to generate IGR are yet to be addressed. Save for Lagos State (N276.1bn ) and perhaps Rivers  (N89.1bn) and Delta (N42.1bn) whose IGR represented 39.0 per cent, 12.6 per cent and 6.0 per cent of total for all the 36 States as at 2014 in that order, poor capacity as seen in 2015 in many of the States implies that another bailout maybe imminent if IGR capacity remains unchanged,” Rewane stated.

In the breakdown of their 2016 budgets sent to their various legislatures penultimate week, some of the 12 states expanded their expenditure by over 100 per cent.

The states include Cross River, which jumped to N350 billion from N127.85 billion, an over 173 per cent increase, followed by Oyo State, jumping by over 113 per cent to N165.1 billion from N77.1 billion last year.

Other states with huge jump in expenditure estimates include Sokoto, with over 55 per cent jump to N174.5 billion against N112.5 billion last year; Jigawa with 35 per cent, jump to N137.2 billion from N101.6 billion; Lagos with over 35 per cent jump to N662.6 billion from N489.6 billion; and Kano with over 30 per cent raise to N275 billion from N210.7 billion.

Five other states that recorded significant increases include Adamawa with over 19 per cent increase, Niger and Yobe states with over 10 per cent increases each and Delta and Ebonyi with about five per cent increases each, while Kwara has a marginal two per cent increase in its expenditure plan.

Founder of the Centre for Values in Leadership, Professor Pat Utomi, commenting on the increase in expenditure said: “I am assuming they are either hoping to borrow, but who will lend to states?

“They are either hoping to increase IGR, also likely to be challenged as businesses restructure in the face of difficult access to foreign exchange, or they are hoping for a future bail out. Otherwise it may just be that the budgets are not realistic.”

•Based on reports from BusinessDay and Nigerian Tribune. Photo shows Chairman of Nigeria Governors’ Forum, Alhaji Abdulaziz yari.

Source: News Express

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