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Thursday, April 09,
2020 / 10:52 AM / By CSL Research / Header Image
Credit: Shutterstock
There were news reports yesterday that the President had
approved the suspension of the payment of interest on debts owed by state
governments. According to the Minister of Finance, Budget and National
Planning, Zainab Ahmed, this was part of measures to reduce the debt burden on
state governments. The moratorium, according to the minister, would be granted
on the Federal Government and CBN-funded loans in order to create fiscal space
for the states, given the projected shortfalls in FAAC allocations.
Recently, the Adamawa State Governor was quoted in news
paper reports saying his state will be unable to pay the new minimum wage in
March due to the Covid-19 Pandemic. The truth is that as long as state
governments do not make desperate efforts to develop their internal revenue
generating capacity, the states in the country would continue to operate an
inefficient rent collection system where they rely solely on FAAC allocation to
meet basic needs such as paying workers salaries.
Most states depend primarily on monthly receipts from the
Federal Accounts Allocation Committee (FAAC) to fund their budgets. Though
there are a few exceptions such as Lagos and Rivers state and many more have
made some efforts to increase Internally Generated Revenue (IGR).
Unfortunately, monthly FAAC disbursements, which mainly originate from oil
receipts to the Federal Government are an unreliable source of income given its
dependence on oil prices. In December 2014, six months after oil prices began
to decline (oil prices had fallen by about 46.5% at the time) it was reported
that 11 state governments were unable to fund workers’ salaries and many needed
bail outs to continue to fund their budgets.
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