Fiscal sustainability plan and matters arising - Flatimes

Monday, 27 June 2016

Fiscal sustainability plan and matters arising

Written by the Editorial board of The Guardian Newspaper

As Nigeria’s economy struggles, things are getting really curiouser. At its May 19, 2016 meeting, the National Economic Council approved the Fiscal Sustainability Plan (FSP). The FSP forms the basis for the budget support loans intended to help state governments that are strapped for funds to weather the present inclement economic conditions and so induce enhanced economic activity. The NEC was informed that 30 states had benefited from the 2015 salary bailout. The bailout entails Excess Crude Account-backed loans for which 35 states had applied. It was also disclosed that the balance in the ECA as at end-April stood at US$2.3 billion, the level which has not changed much till now.

Firstly, it is not clear why five applications for the bailout remain outstanding. But it is a fact that each state owns a part of the ECA just as it is public knowledge that most of the states owe their workers arrears of salaries. Hence the delay in releasing the bailout funds (which were open to be accessed in July last year) to five states is reprehensible particularly if any of the outstanding applicant states falls into the class owing salary arrears.

As regards the objective of stimulating the economy in the process, it is pertinent that state governments unanimously and constantly demand that ECA funds be shared. In the face of the ever-rising unemployment and the myriad infrastructural constraints over the years, and all the more in the present situation where the Federal Government needs not only to settle pension arrears and debts long owed to contractors but also to defray expenses incurred by states on FG projects, any funds nestling in the ECA not as a result of a lack of absorption capacity have always epitomised the paradox of thrift.

Best practice requires government to utilise and exhaust its revenue receipts to finance its budget before proceeding to borrow within acceptable limit in the event of a revenue shortfall. Federal policy-makers should understand that the price of national thriftiness with the oil receipts warehoused in the ECA and its twin, the withholding by the CBN of allocated Federation Account oil receipts which are then substituted with apex bank excessive deficit financing of the budgets across the tiers of government includes the country’s limited real economic growth, the absence of economic diversification to a degree that can withstand significant drop in oil receipts and unremitting underdevelopment since independence. Savings of all receipts and forex inflows generally can and should be made differently. Thus, going forward, government should release any uncommitted ECA funds in order to foster rapid economic expansion at the rate dictated by available resources.

Secondly, concerning the planned budget support loans to state governments, in the event that the funds in the ECA are unpledged, the state/local governments’ share even at the rate of N197/$1 is more than twice (over thrice at N282/$1) the N90 billion total budget support loans from banks, which the FG has interlopingly offered to guarantee. It is illogical and wrong for the FG to sit on funds that constitutionally belong to the states and simultaneously advance the commercial interests of private banks by directing state governments to contract bank loans amounting to just 30 per cent of what is being warehoused in the ECA on their behalf at nine per cent.

That action hobbles the states and retards economic expansion. So, there is need for FA beneficiaries to access their entitlements timeously to enable the states to meet their obligations. Relatedly, it follows that upon full and prompt release of FA accruals, it will not be the place of the FG to act as guarantor of states contracting bank loans, which makes the FG liable to settle any outstanding debts of defaulting states.

Thirdly, it should be stressed that state governors unanimously approved the FSP. The governors agree that further financial support under the FSP should be conditional upon independently verified attainment of 22 conditions. Doubtless, the sound financial management code will check profligacy in cash-strapped states angling for bank loans. However, it will be left to labour activism and public spirited residents to ensure accountability and good governance and to contain the ingrained government excesses in well-to-do states and by extension at the federal level.

Needless to state, loans have to be repaid. Robust economic growth eases government loan repayments. Thankfully, the harsh economic conditions have forced the unitaristic FG “to recognise the critical importance of developing a broad-based economy with productive activities in every state”. This recognition should translate into express legislative enactment that place sectors of the economy like solid minerals and seaports under the control of host states. That will foster faster growth.

Now and overarchingly, over 90 per cent of both oil and non-oil FA receipts have been accruing from a few states. But under the unitaristic federal constitution, the FA allocation formula gorgingly pampers the FG with the lion’s share of the revenue, hugely dispossesses the major revenue generating states and makes the vast majority of the states to freeload to a very great extent. This indolence-inducing formula is not sustainable.

Sooner than later, the resurgence of militancy in the Niger Delta area, the strident demand for resource control and the unisonal call for a reduction in the current FG share of the Federation Account will produce new revenue sharing formula that may approach what existed in the First Republic. At that stage the unviability of most of the present states will be cast in bold relief. It is, therefore, imperative to restructure the country into viable units that will compete to grow and develop the economy under a federal qua federal constitution.

Instructively, the acute revenue shortfall has also led some state governments to negotiate with labour to settle their salary arrears piecemeal. That may well be a prelude to a variable salary structure in the states besides being a clear indication that the extant unitaristic uniform salary structure across the states is partly responsible for compounding the piling up of workers’ salary arrears. Under a true and fiscal federalism, apart from a national minimum wage, the federating units pay their workers according to what their respective kitties can bear.

The Fiscal Sustainability Plan, therefore, additionally hands down a summons requiring the Federal Government to both properly manage the economy and institute a workable national political structure with deliberate speed.

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