New Telegraph

February 26, 2024

Bailout Crisis: FG’s Closure Of Support Window For States

The Central Bank of Nigeria (CBN), acting on the orders of the Federal Government, had advanced various tranches of bilateral facility as bailouts to states during recession and Covid-19. Seven years after, states are yet to honor the repayment obligation, Abdulwahab reports

Federal and state governments maintain cordial relationships, even though the relationship is more rewarding to states. A father figure to two federating units, states and local government, the Federal Government provides support to states whenever a need arises. The assistance comes in various forms like grants, incentives and budget support facilities. In 2016, 2017 and 2021, the Federal Government rescued states when Nigeria’s economy experienced recession and COVID-19. Recall that Nigeria’s economy experienced a recession in 2016.

This was followed by COVID-19, which caused a significant decline in oil revenue. Global economic activities stalled for months. A frontline oil producing country with 70 percent of its overall earnings dependent on oil revenue, Nigeria’s economy experienced near breaking point. States were hamstrung by low revenue from federation purse and equally constrained by low internally generated revenue. Consequently, the majority of 36 states and Federal Capital Territory (FCT) found it difficult to meet both salary and contractors’ obligations.

The Federal Government initiated the Budget Support Facility (BSF) to bail out state governments. Former President Muhammadu Buhari in July 2015 approved a $2.1 billion intervention package to help bankrupt states meet the backlog of salary owed civil servants, in addition to clearing contractors’ obligation. The funds were released in tranches.

Budget support as lifeline

Budget Support Facility (BSF) refers to financial assistance by the Federal Government to states that are in dire financial constraints, preventing it from meeting obligations. In the era of economic recession, extending to COVID 19, the Federal Government mandated the Central Bank of Nigeria (CBN) to provide support facilities to states. This was to enable them remain afloat in discharge of their obligations.

The facility got a buy-in from the National Economic Council (NEC). On the order of the Federal Government, the CBN in 2015, 2016 and 2021 provided for the states. In 2015, 19 of the 36 states of the federation benefitted from CBN’s workers’ salary bailout package to the tune of N338 billion. The loan facility was a 20-year repayment tenure for all the states, ex- cept Ogun, which opted for a 10-year tenor. The beneficiary states include Kwara, Zamfara, Osun, Niger, Bau- chi, Gombe, Abia, Adamawa, Ondo, and Kebbi. Others include Ekiti, Imo, Ebonyi, Ogun, Plateau, Nassarawa, Sokoto, Edo and Oyo.

In 2021, former President Buhari approved fresh N656 billion BFS to states. Each state received N18.2 billion. Speaking on the facility in one of the NEC meetings in 2021, a former Minister of Finance, Budget and National Planning, Mrs. Zainab Us- man, said the approved facility of N656.112 billion would be disbursed in six tranches over a period of six months to the states. “Expectedly, each of the 36 States will have a total loan amount of N18.225 billion; with a 30-year tenor, and a 2-year moratorium at an interest rate of nine per cent.

“The facility is to help the states afford the repayment of previous bailout facilities guaranteed for them by the Federal Government,’’ she said.” Provision of BSF to states was the ultimate lifeline, which bailed out 36 states and the FCT. With the facility, states that owed civil servants a backlog of unpaid salaries, gratuities, pension and arrears for contracts cleared substantial part of their debts.

Payment default

From several engagements with the National Economic Council (NEC) and Ministry of Finance, CBN insisted the loans were to be paid back. There was an arrangement by CBN to begin phase deductions from states’ FAAC allocation. During one of NEPCs’ meetings, a former CBN Governor, Godwin Emefiele, harped on repayment of the loans. However, the states have been requesting an extension in the repayment plan. “We did provide a budget support facility for all the states of this country.

That loan remains unpaid till now, and we are going to insists on the states paying back that money going forward, since they are accusing us of giving them loan, effective, that is what they are saying,” Emefiele had said while responding to Edo State Governor, Mr Godwin Obaseki, who accused the CBN of indiscriminate printing of money at the time. Usman, while clarifying BSF status during one of the Medium Term Expenditure Framework (MTEF) sessions, confirmed that an agreement was reached between CBN and states on gradual deductions from FAAC allocations due to states.

“The N614 billion bailout funds to states is not going to form part of the revenue for funding the budget, it was a loan which was advanced by the CBN and the repayment will be made to the CBN. “So the recovery process for us is to deduct from the FAAC allocation to the states and then we remit to the CBN and we are going to start these remittances by the next FAAC so there will be no requirement for us to consider the FSP implementation. “We do that as a matter of wanting the states to stay on the path of fiscal sustainability but it will not be a condition for the deduction.

We will deduct directly at source and remit to the CBN,” the former Minister had said. A shocking disclosure by Vice President, Kashim Shettima, who doubles as Chairman of National Economic Council (NEC) that 36 states and FCT collectively owed N1.7 trillion as BSF is the latest revelation on the loan status. The states have not only reneged on paying back the facility, every move by the Federal Government to compel them to honour repayment obligation is being resisted. The states advanced reasons ranging from financial constraints and other financial challenges.

Curtain draws on budget support

The Vice President and Chairman of NEC, Alhaji Kashim Shettima, while providing updates on the loan status last week put tge total outstanding at N1 .7 trillion. He said the government decided to discontinue BSF as the facility has been stopped effective from July 2023. The Vice President justified government’s decision to cease providing budget support loans in July 2023, to the increase in the federation’s revenues.

The Federal Government, he explained, opted to allocate a portion of funds from the Federation Account to settle the outstanding liabilities, there- by bringing closure to the programme. The government emphasised commitment to providing support to state governments through alternative means, such as technical assistance and capacity building programmes. These initiatives aim to enhance the financial management capabilities of state governments and enable them to effectively utilise their own resources for development purposes.

The discontinuation of the budget support loan programme marks a turning point in Nigeria’s fiscal policy. While the programme provided temporary relief to state governments, the accumulation of substantial liabilities necessitated a change in approach. Federal Government’s decision to prioritise settling outstanding debts and promoting sustainable fiscal practices demonstrates a commitment to long-term financial stability for the nation.

Last line

As curtain draws on the support facility, Federal Government’s lending window to sub-national governments, it is imperative states remain committed to the repayment agreement signed with CBN.

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