Date: 2015-09-06

The excitement permeating the civil service in Zamfara and Kwara States over the disbursement of bail out money has begun to rekindle hope in the ability of the various tiers of government to overcome some of the financial related crisis affecting them.

This is because the thinking in some quarters is that the commencement of the disbursement of the funds will not only free the states of the burden of the salary obligations to their respective civil servants, it is also expected to remove the prevailing frosty relationship between the government and the labour unions, a development which has largely slowed down process of governance in many states.

The Bailout

It is believed that President Muhammadu Buhari acceded to the request for bailout by states in order to give the states a fresh start given the fact that the burden of the rising salary obligations to civil servants and contractors was slowing down the take-off of government in many states.

However, the most interesting part of the deal was the directive by the CBN to banks that the bail out money should be paid into the individual account of members of the state's civil service.

In order to ensure the fund is used by states to offset outstanding workers' salaries, the Central Bank of Nigeria (CBN) was said to have directed all Deposit Money Banks (DMBs) involved in negotiations with state governments, to pay the money into the salary accounts of the workers.

This condition, it was further learnt, has thrown some state governments into a dilemma because they cannot access more than what is required to settle the backlog of salary arrears which have been a source of embarrassment to many state governments.

To guard against sharp practices, in accessing the bailout, a CBN source was quoted as saying: "Banks will have to do their own assessment to see how much the states actually need before releasing the funds. It won't be far-fetched to see a state that, maybe, need only N20 million to offset the backlog of salaries asking for N100 million. So, the banks have to check to make sure they are not giving too much to the state governments.

Of the 27 states that applied for bailout efforts of the federal government, Zamfara and Kwara were the only two deemed to have perfected their papers leading to the release of the funds by the Central Bank of Nigeria.

According to a statement by the apex bank, the approval was based on the CBN's decision to consider ways of liquidating the outstanding staff salaries owed by state and local governments. "The conditions for accessing the loan facility include State Executive Council authorisation, state House of Assembly consenting to the loan package, as well as issuance of Irrevocable Standing Payment Order to ensure timely repayment.

The Breakdown

p>A breakdown of the loans repayable at an interest rate of nine per cent over 20 years is as follows: Abia- N14.152b; Adamawa- N2.378b; Bauchi- N8.60b; Bayelsa - N1.285b; Benue - N28.013b; Borno - N7.680b; Cross River - N7.856b; Delta - N10.036b; Ebonyi - N4.063b; Edo- N3.167b; Ekiti - N9.604b; Enugu - 4.207b; Gombe - N16.459b; Imo - N26.806b; Katsina - N3.304b; Kebbi - N0.690b; Kogi - N50.842b; Kwara - N4.320b; Nasarawa - N8.317b; Niger - N4.306b; Ogun - N20.00b; Ondo - N14.686b; Osun - N34.988b; Oyo - N26.606b; Plateau - N5.357b; Sokoto - N10.093b and Zamfara - N10.020b.

The CBN last week announced that it had approved that Deposit Money Banks (DMBs) lend money to requesting states to pay salary arrears owed their workers.

The CBN explained that specific figures were attached to the facilities to be disbursed to the states because "every state is to come up with its specific needs in order to access the facility from the commercial banks." The decision to borrow money from commercial banks is sequel to the decision by the National Executive Council (NEC) at its June 29 meeting, requesting the CBN ""n collaboration with other stakeholders to appraise and consider ways of liquidating the outstanding staff salaries owed by state and local governments."

The Buhari administration announced a bailout package for states to take care of the backlog of workers' salaries and access funds for development through the rescheduling of their debts by banks with the CBN's guarantee. Eleven states have had their commercial debts to DMBs restructured with a proviso to pay 14.83 per cent of the value of their bonds which their commercial debts were converted to. Eleven others are also to have theirs restructured.

Discordant Tunes

Financial experts who spoke on what to expect from the release of funds to states however differed in their views. An economic analyst and Head of Portfolio Management at Meristem Wealth Management Limited, Mr. Taiwo Yusuf, reacting to the development, said a huge chunk of the N338bn would be used to pay salaries, which falls under recurrent expenditure.

He noted that the N338bn would go into the economy without any major stimulation in economic activities because the multiplier effect of the payment of salaries might not lead to a significant revamp in economic activities. Aligning with this perspective, an economist and Chief Executive Officer, Investments Upgrades, Mr. Chinedu Nwankwo, said the N338bn might increase the purchasing power of the affected workers and lead to increase in consumption, but it might not necessarily lead to any increase in production activities soon.

But the Head, Research and Investment, Afrinvest West Africa Limited, a research and investment advisory firm, Mr. Ayodeji Ebo, said the payment of the N338bn to workers would lead to an increase in economic activities and the purchasing power of the workers as well as the production of more consumer goods. According to an Abuja-based development analyst, Odilim Enwagbara, the disbursement of the fund to states is good for the economy because money meant for development of the economies of the states will now be available and fully utilised for that, adding that, no longer will such money be shared with the banks for outrageous debt service.

He pointed out that one of the benefits is that the states will henceforth have access to all allocations coming from the federation without having the banks to first deep their hands into the money before it gets to them. This, he said, means that states' allocations will get to the states first and wholly. He said the development will ensure that money meant for the states will be spent purely on the development of the states, unlike the present situation where such funds are diverted on the pretense that it is being used to service bank loans.

When asked if the states had learnt their lessons, Enwegbara said, "Whether they have learned their lessons or not is immaterial. What is important here is that state governors will no longer go on a borrowing spree; money they borrow to divert into their personal accounts or placed in high interest-yielding fixed deposit accounts, which meant that salaries and projects the money is meant for are not met.

"The good news coming out of the present states' financial recklessness is that the new fiscal discipline accompanying this fiscal crisis is that henceforth before states can borrow again from the banks, not only will they have to subject themselves to some rigorous debt sustainability analysis and approval process by the Debt Management Office, but also the banks on the other hand will have to go through rigorous approval process by the CBN or the SEC if the governor is trying to raise bonds. This means that the era when governors and banks connive to load bogus, unproductive, and difficult to service debts, which for years plunged most states into perpetual debt traps servicing of which hardly happened without further borrowing, is over." He believed that the government's gesture will not favour banks. According to him, " Rather than benefitting the banks, the new arrangement, having them cut off from their outrageously high returns on debts makes them the worst losers."

He said the commencement of releasing funds means more funds are injected into the system. "Those whose salaries have not been paid will get paid, social infrastructure projects that have been denied funding or postponed because of lack funds will get funded

"Contractors being owed will get paid. In any way, there will be more money in the system. With more money exchanging hands more wealth is created, which not only leads to economic growth and more jobs created but also generate more tax revenues to government."