There is a massive drop in oil earnings by 80 percent and the Nigerian government is struggling to secure proceeds from crude sales. It is clear from reports that Nigeria’s economy is bound for recession. Already, the GDP is expected to drop by 8 percent in 2020.
With the way revenue is shared in Nigeria, the majority of state governments rely largely on federal allocation to survive. Unless a deliberate effort is made by state governors to source for funds elsewhere, at least 33 states may find it difficult to pay salaries from May 2020.
The salary crisis began in April when some states hinted at a cut in pay. For example, Kaduna and Nasarawa in April announced a 25 percent cut. Both states claimed this is due to dwindling revenue because of the Coronavirus crisis. However, the Federal government has continued to dip into every reserve to salvage the fiscal crisis by the state governments. For instance, President Buhari has approved about $350 million from the stabilization fund to help states pay salaries. Likewise, loan repayment has been relaxed for states to help respond to the revenue crisis.
The March FAAC Meeting
In March 2020 when members of the Federal Account Allocation Committee (FAAC) met to share monthly accruals to the federation account every other month, the meeting ended in a deadlock as members disagreed over the amount presented by revenue-generating agencies. The meeting, presided over by the Minister of Finance, Budget and National Planning, Zainab Ahmed, had in attendance, commissioners of finance from the 36 states in Nigeria.
The disagreement, as reported on various news platforms isn’t unconnected to the fact that without federal allocation, a lot of states will not be able to pay salaries because they rely heavily on the monthly allocation to meet their financial obligations.
After the FAAC meeting, the Federal government decided to withdraw the sum of $150 million from the Nigerian Sovereign Investment Authority (NSIA) to help address emerging fiscals risks which coronavirus pandemic has caused Nigerians. Experts have raised concerns over its sustainability. This was further echoed by Ekiti State Governor and Chairman of the Governors Forum, Dr Kayode Fayemi while appearing on Channels TV last week. He said states may get zero allocations from Federation Accounts Allocation and Fiscal Commission (FAAC) in June owing to the drastic fall in the prices of crude oil.
Only three states can Pay salaries without FG input
With the way things are going, it’s likely the COVID-19 crisis will hit some states and their workers more than it happened in 2016 because the lowest price then was $29 per barrel and it quickly moved up to $35 per barrel and continued climbing till it dropped to about $10 per barrel in 2020.
According to a 2019 report, thirty-three (33) out of 36 states in Nigeria rely solely on Federal allocation to run their states. The report noted that only three (3) Lagos (has the highest internally generated revenue), Rivers and Akwa-Ibom states out of 36 states can survive without Federal allocation. This shows that these three states have another major source of income apart from the Federal allocation which is Internally Generated.
In the 2016 economic downturn, 27 states owned workers and pensioners salaries and entitlement ranging from 1 to 36 months.
FAAC dominate more than 50% of total income realised by states in 2017
According to a report by The Cable, revenue from the Federation Accounts Allocation Committee (FAAC) formed more than 50% of the total income realised by states except for Lagos and Ogun states where their allocations represented 21% and 25% respectively in 2017. The IGR of these 2 states is higher than FAAC allocation because they were generating more than what they even get from FAAC.
Also from the report, it was shown that there was an increase in the internally generated revenue from 31 states while the remaining 5 states who couldn’t meet up in the increase of IGR were Anambra, Akwa- Ibom, Osun, Taraba and Bauchi states.
The total income from 2017 state IGR was N931.23 billion while 2016 recorded N831.19 billion, this shows that there was an increase in the IGR states by 12.03% year on year.
Within the period, Lagos alone recorded the sum of N333.96 billion from the total income, a 10% increase from its 2016 IGR. Its revenue figure is higher than the IGR of 29 states put together while 2016 IGR from Lagos state was also higher than that of 33 states put together. This means that the majority of the states depend on federal allocations to pay their workers.
Experts ask states to look inward as salary crisis sets in
On available policy options, state governments can adopt to be out of the financial mess in a webinar organized by DATAPHYTE on Friday, April 24th, 2020, an oil and gas policy expert, Aderonke Onadeko, said, “States should consider early retirement for civil servants in the sense that it is high time for States to start looking at the burden of paying salaries and encourage early retirement for staffs so as to reduce the monthly wage burden. Onadeko also suggested that states like Ogun state with higher institutions should start thinking of the economic benefits of such an advantage.
Moderator of the Webinar Series, Patrick Okigbo suggested that it’s high time state governments look inward and divert whatever they spend on security votes to more productive aspects of the state’s economy for fiscal viability. Security Votes is a monthly allowance that is allocated to the states within the federal republic of Nigeria for the purpose of funding security services within the states, especially states that face security threats like kidnapping, robbery, etc.
Patrick suggested that states should be more transparent in the management of security votes. Citizens do not support security votes because the funds are not properly utilised. Moreso, there is no accountability and transparency on the funds. It is necessary to review the Security Votes framework.
States Must Review Spendings and Bureaucratic System
Mr. Atiku Samuel, a policy analyst, said “the informal nature of the Nigerian economy is a challenge.
“State governments typically struggle to collect various taxes the constitution empowers them to collect. State governments are not willing to go the extra mile to collect tax from the people that they are supposed to tax. This is because there is a big trust deficit between government and the people.
Atiku also raised issues on the huge personnel cost obligations at state levels. Citing the example of Lagos, he said the cost of running the office of the governor of Lagos state is way higher than the cost of running the office of the president of Nigeria.
He also added that, giving the complex nature of the bureaucratic system which the state expands unnecessarily. For instance, Cross River Governor has about 440 new aides. We have a complex nature of the decision and the decision making at the state level is not logical, it doesn’t follow a particular logical thread and creates huge unnecessary expenditure that you have to cover.
In summary, leadership at the state level is very weak and the leadership component, the kind of thinkers that we have at the state level, does not put people in a state where you can begin to actually trust the government to make right decisions. The heart of everything is the fact that we need to actually begin to move to shift those structural issues, freeing up states to be able to do certain things and they begin to see benefits of doing those things.