Categorized | Nigerian News

States are financially Bankrupt -RMAFC

written by George Oji and Emma Onani

The Revenue Mobilization Allocation and Fiscal Commission, RMAFC, yesterday disclosed that many states in the country are currently having financial difficulties, which manifest in signs of bankruptcy.

This disclosure was made by the Chairman of RMAFC, Elias Mbam, when he appeared at a public hearing organised by the Senate Joint Committees on National Planning, Economic Affairs and Poverty Alleviation, Finance, Appropriation and States and Local Government on the “Looming Danger of Bankruptcy in States – the Need for Fiscal Evaluation,” in Abuja.

Mbam said some of the signs that made his commission arrives at the conclusions that the states are in financial distress are huge deductions from their allocations for the settling of external and domestic debts and bonds.

This, he said, has resulted in the states collateralizing their share of the monthly Federation Account receipts to service such debts.

The RMAFC boss described the persistent nature of the deductions, as “worrisome as it portends danger for the fiscal capacity of some of the states.”

Mbam said: “Before and after the passage of the National Minimum Wage Act in 2011, there were series of outcries by the states and local governments over their lack of financial capacity to pay the new workers’ wage and at the same time provide minimum services to the citizenry.

“This is a critical sign that the finances of most states and local governments were unhealthy.

“Today, most states have not been able to implement the new minimum wage.

“From media reports, most state governments have very huge monthly wage bills, to the extent that it is being alleged that they now use the funds of the local governments to run their states.

“The challenge has made state executives to call for the review of the Revenue Allocation Formula in favour of the states.

“Equally, they have also called for the removal of fuel subsidy which they also believe would enhance the revenue accruing into the Federation Account and invariably the statutory allocations to their respective states and local governments.”

According to the RMAFC chairman, the best way to stem the dangerous financial slide was for the National and State Assemblies to enact appropriate legislation to peg the power of states to borrow from external sources.

If the states must be allowed to borrow, Mbam said such borrowing must not exceed 20 per cent of their monthly allocations.

He put the total external debt stock of all the states as at December 2011 at $2.165bn (N346.4bn) and that of the Federal Government for the same period at $3.501bn in addition to a domestic stock of N5.622trn.

He said: “The commission considers this debt profile as high. The Commission has observed with concern the huge domestic debt profile of the states as most of them are highly indebted to various local banks in short term borrowing and are substantially exposed to the Capital Market.

“Most of these loans are tied to Irrevocable Standing Payment Orders, ISPOs, issued to the Accountant-General of the Federation to deduct directly from their monthly allocations due to the states thereby preventing them from meeting their minimum basic obligations to the citizens.

“Deficit budget has become a serious challenge for most states. Even though deficit budgeting is tolerable within an acceptable limit, its endless application has endangered and forced the state governments to resort to excessive borrowing in order to meet their basic expenditure demands even where they have no capacity to pay back.

“The regular sharing of Excess Crude Account is an indication of the desperate financial position of the state governments to get funds in order to meet costs of governance. For instance, the sum of $1.5billion was shared in three equal installments from the Excess Crude Account in 2011 alone out of which the states received the sum of $400.800million.

“The National/State Assemblies should consider appropriate legislations limiting the total exposure of states to external and domestic borrowing to not more than 20 per cent of their monthly allocations from the Federation Account. In addition such borrowing should be for economic projects. Furthermore, there should be strict compliance to the relevant provisions of the Borrowing by Public Bodies Act (CAP.B10, LFN, 2004).”

Figures presented by the RMAFC boss shows that the highest amount of N47,608,580,436.11 was deducted from Bayelsa State allocation of N58,756,863,268,.89 between January 2009 and December 2011.

The deduction represented 81.03 per cent of the total allocation for the period.

Delta State’s deduction followed at N14, 859,658,105.28 from a total allocation of N55, 624,245,350.56 representing 26.71 per cent.

Imo State deduction was the third highest with N15, 982,313,156.72 out of a total allocation of N64, 766,054,092.45 representing 24.68 per cent.

The lowest deduction was made from Borno State allocation.

The total amount deducted from the state allocation stood at N1,273,275,887.78 out of a total allocation of N90,310,545,138.25 representing1.41 per cent.

Chairman of the Joint Committee, Senator Barnabas Gemade noted that it was regrettable that instead of energies being directed towards marshalling out development agenda to free people from abject poverty in most states, “resources are being wasted on populist programmes aimed at attracting cheap but transient popularity for future re-elections.”

According to him, “in some cases, large resources are being out-rightly misdirected to private interest.”

He noted that the Senate was worried with a situation where the bulk of state revenue was to fiancé the salaries of civil servants which constitute less than 40 per cent of the total population.

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One Response to “States are financially Bankrupt -RMAFC”

  1. Naija4ever says:

    As long as the allocations keep coming and also increasing they will not go bankrupt and creditors will keep lending and deducting Most states were created purely on political grounds, therefore most are not financially viable. How is he going to get the state legislature to change the laws when the legislators are in the pockets of the governors?. The solution will be to have an independent credit rating agency that will guide both external and domestic creditors.


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