Nigerian states going bankrupt, owe N2.4trn

Unless the Federal Government acts fast to curb the appetite for foreign debts, all the 36 state governments may go bankrupt, the Senate warned yesterday. This was the verdict of the upper chamber of the National Assembly when it received the report of its Joint Committees on National Planning, Economic Affairs and Poverty Alleviation, Finance, Appropriation and States and Local Government Administration, presented by the Chairman, Senator Barnabas Gemade.

Senate said all the states depend on federal allocations and foreign loans, a development which it said, is anti-development. The Upper House also canvassed a review of the extant Revenue Formula Act which was enacted by the Babangida military regime in 1992.

Senate is also pushing for a new revenue formula that would favour states and local governments, with periodic reviews henceforth.

The states owed a hefty N2,390,900,305,399.84 as at last December. A breakdown given by the joint committee showed that total foreign and other loan deductions from January 2009 to December 2011 stood at N266,892,065,000.06 while gross statutory allocations during the same period was N2, 657, 792, 370, 399.90.

Gemade listed the Federal Account Allocation Committee (FAAC) files from 2009-2011 as its source with a further note: “The above table is only in respect to foreign debts and other loans directly tied to the Federation Account so, it does not include other exposures to commercial banks and the capital market which are substantial.”

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On the demand for a review of the revenue formula, Senate noted that previous attempts made by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) particularly in 2002 and 2004, the system of revenue allocation has remained that of 1992 with only a slight modification.  “Since the approval of the existing revenue formula in 1992, there had been changes in the political structure of the country. Six additional states were created in the country in 1996 and are yet to be taken into consideration.

“Similarly, when the same revenue allocation formula was approved, the local government councils were only 589, with the additional 185 councils created in 1997, the number increased to 774. This, too, has not been taken into consideration by the existing revenue allocation formula.

“The existing revenue allocation formula does not include the new principles to be used in revenue sharing among states and local government which were clearly spelt out in the 1999 Constitution and that the increased constitutional responsibilities as encapsulated in section 313 of the Constitution and New National Minimum Wage as well as recent increases in salaries and wages of political office holders and the judiciary were not envisaged by the existing sharing formula.”

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To forestall states going totally bankrupt, Senate is considering new laws that would limit exposure of the state governments to just 20 percent of their federal allocations. “The legislature should consider appropriate legislations limiting the total exposure of states to external and domestic borrowings to not more than 20 per cent of their allocations from the Federation Account. Such borrowing should be for economic projects only and when it is absolutely necessary. Further, there should be strict compliance to the relevant provisions of the Borrowing by Public Bodies Act (CAP. B10,LFN,2004);

“Application of the 13 per cent derivation principle be properly implemented, considering the Supreme Court judgment in suit SC28/2001 on April 5, 2002.” Besides, Senate urged government to ensure that future proceeds from the Excess Crude Account are geared towards projects that would impact on the economy.

“Stabilisation Funds and allocations from the Excess Crude Account to states should be targeted at economic projects that have direct impact on the people.” The Gemade report specifically slammed governors for grossly misappropriating and misapplying public funds. “There is high rate of corruption and corrupt practices through misappropriation and misapplication of public funds, abuse of immunity clause by some state governors and the incapacitation of the various anti-graft agencies through political subterfuges.”

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Senate further said that viability should be one of the major considerations for states creation in the future. “There is a fundamental issue of non-viability of the 36-state structure. The fragmentation of the original three-region structure at independence to one of the four regions, 12 states, then 19 and now, 36 states, with the multiplication of governors, state Houses of Assembly, ministries, commissioners, secretariats.

“Most of the revenue accruing to the states and their LGAs end up being misappropriated as states fail to remit the LGAs share since they control the joint state/LGA account,” the report said.

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