Amid deepening cash crunch, there is the fear that many states across the county are increasingly finding it difficult to meet their financial obligations.
Bogged down by huge debts for which the bulk of the allocations from the Federation Account is deducted to service, the situation has eroded the ability of the states to pay workers’ salaries.
The bailout package initiated by the Federal Government for the state and local governments to enable them pay the backlog of salaries, it was learnt, provided little respite.
Analysts feared, at the weekend, that many workers across the country may face bleak Christmas as their state governments may be unable to pay salaries ahead of the Yuletide due to the cash crunch.
Salary payment in several states remain in arrears of many months.
The huge debts of some of the debts were blamed on the sliding Naira as they were denominated in dollars at the time the states took foreign loans, and the fate of the Naira at the forex market was under control.
Today, the Naira exchanges for over 240 to the dollar.
In July 2014, N630.32bn was allocated to the three tiers of government – federal, states and local governments – from the Federation Account. Later in August of some year, N601.65bn was allocated to the states. For September 2015, the figures just released indicate that N389.936 was shared by all the tiers of government; representing drops of 35% and 38% from the August and July 2014 allocations. Yet, N601bn in August represented a sharp decline from the previous months in 2014. At the moment, the three tiers of government are sharing less than half of what was available in January 2014.
At the end of December, analysts believe states will be extremely lucky to collect half of what they now receive. The implication is that many states are on the verge of bankruptcy. The consequences, according to the analysts, may be difficult to imagine.
In 2013, we had published that states may not be able to pay salaries by 2015. Earlier in 2014, we published a warning on drop in aggregate revenue and its consequences. Then we predicted that the economy will no longer grow at six per cent or more. Finally, we told investors to get out of the NSE.
States on the verge of bankruptcy
The governors of many states want to re-negotiate the minimum wage agreement with labour. That is only the symptom of the dire financial straits in which the states, analysts believe, find themselves. Even the inevitable mass retrenchment of workers, they say, will not totally get them out of the woods. “Debt and contractual obligations, which will gulp an increasing percentage of their revenue, will finish them first. For some, the calamity will set in by the end of the first quarter of 2016. Unfortunately, most of the states are APC-controlled. They will damage Buhari’s political position – if care is not taken,”one of the analysts told Sunday Vanguard. Today, we focus attention on two issues which will determine the fate of our states. The first is the deduction from source, that is, Abuja. Many state governors, since 1999, have been reckless with public funds. Even those who have proved to be clever in shielding their recklessness from detection were/are as unpatriotic as those careless to be caught.
Below is table derived from the Distribution of Revenue Allocation To State Governments For September 2015. Instead of listing them in alphabetical order, they have been grouped into three based on gross revenue expected to be collected from Abuja. Also listed are the gross deductions from each state’s revenue allocations. Those deductions are expected to continue indefinitely.
When states took on huge debt burden, sometimes spent on unsustainable programmes, they little realized that a sharp decline in revenue will doom their states economically.