FISCAL RESPONSIBILITY ACT: CURBING THE IRRESPONSIBILITY IN MANY STATES
After the heroic efforts Of President Olusegun Obasanjo and his Minister of Finance, Dr Ngozi Okonjo Iweala to get the Paris Club to forgive a large chunk of our Debt, most of which had become delinquent and clogging our credit worthiness, he was determined to do all in his power to see that we never walked that route again. One of the things he did, was to push through the fiscal responsibility act in 2007 before his exit. Among other things,the law specified deficit to GDP ratio for the federal government which should not exceed 3%, the borrowing limits for the Federal Government and the State Governments, what the borrowed funds must be spent on and the need to maintain budget and procurement integrity. Though the act is a federal act, certain aspects apply to all the tiers of government and it was expected that all the States would adopt or domesticate the laws.
But the recent revelations that up to 23 Out of 36 States of the Federation are unable to pay workers salary as at and when due, with some owing up to eight months shows poor management of the State resources. If States can not pay salaries, what else can they do?. Recently, it has also been revealed that our states owe about 660 billion Naira to commercial banks, that will need restructuring as many of the states are currently unable to pay. Thus if some of these states were private companies, they should be filling for bankruptcy . And yet we have not included debt to multilateral Agencies like the World Bank and the African Development Bank, nor have we considered unsecured debts to contractors and sundry service providers to state governments. I will like to know what the Balance sheet statements of these states look like.
Now , the Federal Government has 'conjured'359 Billion Naira (from a hitherto 'empty' treasury) to help itself and the States meet their salary obligations as this was becoming a national security threat. The Central Bank has offered soft and concessionary loans of between 250-300 Billion Naira as bail out to needy States. I bet that the 36 States will bite the bait. Additionally the CBN and the Debt Management office( DMO) have agreed to work with the commercial bank creditors to restructure the 660 billion Naira loan, to grant repayment moratorium and extend the tenure of the loans to fifteen years. This is certainly an excellent relief package for the States and I must congratulate the Federal government for rising up to this challenge. The question therefore that arises is: how long will this last before we return to this square?
For sure, this is not the first time we have had to deal with backlogs of unpaid salaries in different states of the federation, the only difference though is that the 'affliction' is more generalized this season. When all the reasons for this are considered, the verdict points to fiscal recklessness, the 'ailment' for which the Fiscal Responsibility act was meant to prevent. Thank God, that many of the States have new governors who can rightly claim that they can not be charged as accused. This is why, I wish to make the following suggestions to help prevent another round of this ailment, at least within the next four years.
1. ADOPT A SAVINGS CULTURE
"Go to the ant, thou sluggard; consider her ways and be wise; which having no guide,overseer or ruler, provideth her meat in summer and gathereth her food in harvest". This is the counsel of the wiseman Solomon. Another counsel says "While the Earth remaineth, seed time and harvest, and cold and heat and summer and winter and day and night shall not cease" There will always be winter and we need to prepare for it. In Nigeria's fiscal weather, the oil bubble bursts in a fairly regular rhythm. The oil prices rise and rise( sometimes for no known reasons), and suddenly they will begin to go down and down ( sometimes for no really valid reasons), until it bottoms out and the cycle will repeat all over again.That Nigeria is still regularly caught 'pants down'each time the the swing goes down, is a study in profligacy.
In addition to the fiscal Responsibility act, Obasanjo and Okonjo-Iweala introduced the Excess Crude Account( ECA) to force us to save. The Governor's forum went to court. Were it not for Obasanjo's known "stubbornness", the governors will have cancelled this only saving device that the Nation has and we may not have been able to survive the global economic crisi s of 2008-2009 not to talk of this current Nigerian oil shock. During President Jonathan's reign, they sustained the pressure and found him more democratic and pliable. So I will like to plead with these new Governors and the hopefully 'repentant' older Governors, like the former comrade in the State of Osun to allow the ECA to remain. Otherwise, there is no other arrangement for savings anywhere in the Federal Government and the States. Since many of them run deficit Budgets, where will savings accrue?except, they refuse to fund the capital budget as the federal government often does(or did?). In this wise, let me add another appeal to the 8th National Assembly to take it easy with pushing up the projected budgeted price of crude oil during the annual budget approval process so that the chance of accruing ECA will be enhanced.
2. INVOLVE THE PRIVATE SECTOR & NGOs IN SERVICE DELIVERY
To avoid unduly stretching the limited resources of the State government in the provision of services, it has become imperative that the States must divest certain businesses and services to the private sector or the Non governmental Organizations(NGOs). Not only will this reduce the burden on the government treasury, it will also create better efficiencies. The example of Governor Peter Obi in Anambra State in the Education and Health sectors requires emulation.
3. WORK ON BALANCED BUDGET
As I said in the preceding paragraph, many of the governments at all levels, operate deficit budgets. While this may be economically justified, when the source of loan repayment can be reasonably guaranteed,we have seen in Nigeria especially in many of the States, that there is no such guarantee. Borrowing and hoping to pay on income from crude petroleum has become a dangerous game these days, because of the different pressures and global 'conspiracy' against hydrocarbon as energy source. It has been said that if you must borrow, then invest it on what would return the investment plus the interest at the due time. There is little evidence that this is being adhered to in many States. One way to improve fiscal responsibility in States is to find ingenious ways to increase internally generated funds without unduly taxing those who are already in the tax net. So my counsel is that as much as possible, state governments must build their budgets on assured income and only take short term facilities when unavoidable to bridge short term shortfalls that must be closed rapidly soon after. Long term loans should only be taken for critical infrastructure and only from concessionary sources.As has been seen in the past, too much borrowing by the public sector
destabilizes the macroeconomy and often displaces the Private sector.
4. STICK TO THE BUDGET
One act of fiscal discipline our Governors must imbibe is to be thorough in preparing budgets and then ensuring that they stick to the budget when approved. If the truth must be told,only very few states operate within their budgets. In several states, it is the governor who decides on daily, weekly or monthly basis what is to spent and on what. Their Finance commissioners are merely 'errand' boys who have little or no authority to manage the budget. In the course of this anomaly spurious items are introduced, while budgeted items or activities are ignored. This 'emperor ' attitude must change if Our people will derive optimum benefit from the state patrimony.
5.THE STATE HOUSES OF ASSEMBLY MUST TAKE BUDGET APPROVAL SERIOUSLY
In many States of the federation, the required rigour to review and approve the annual budgets does not exist. There is hardly an understanding of the concept of Profit and loss or Balance sheet statements. Every body is struggling to include their projects in the budget and the focus is mostly on "scratch my back, while I scratch yours". Not much worry on how the Budget will be funded. And even after all the scratching, not much happens, because it is only the Governor who will determine which project will be prosecuted or funded, whether in the budget or not. And what is worse, the oversight function is derelicted as neither the Governor nor his commissioners are held accountable as long as the "oversight logistics" are taken care of. This kind of budget oversight is a major cause of much of the fiscal irresponsibility in many of our States and must change for good. The houses of Assembly must act as true 'watchdogs' on the executive, otherwise much of the money we spend on them will not be justified, if they prefer to become "rubber stamps" instead.
6. DOMESTICATE THE ANTI-CORRUPTION WAR.
Most times, it looks as if corruption must be fought by the Federal government alone. Everybody is expecting President Muhammadu Buhari to wage war against corruption. Is there any law preventing State Governors from launching the anti-corruption war in their States? This is one viable action to achieve fiscal responsibility. From dealing with 'ghost' workers to the issue of 'ghost' projects; from contract padding to outright misappropriation
the State can save a lot of money to create more value for the People of their States. Indeed I am ready to make a bet, that any state that can destroy the corruption demon or hold it in check, will never go broke.
7. DOMESTICATE THE FISCAL RESPONSIBILITY ACT.....then enforce it!
To ensure that we do not pass through this square again, at least not too soon,we must adopt the fiscal responsibility act in all the 36 States of the Federation. It will at least help to guide the state governments on how and how not to borrow and encourage them to do their utmost to live within their means. But as we know too well, adopting the law is only the first part, but the more important but usually very difficult part is to enforce the law. And to me, if we can't enforce the laws we make, we might as well not have laws at all!
On this matter, the Fiscal Responsibility Commission must wake up to its responsibility. Hearing from one of the senior officers of the commission on a recent NTA programme that the limits on borrowing, supposed to be set for the state governments has not been done by the "federal government" after seven years, left many of the contributors and listeners baffled. Who is the" federal government"?. We have a commission with its full complement of commissioners and their SAs & PAs and perhaps also with their SAs to SAs or PAs to PAs, waiting for the "federal government" to do what the law has empowered the commission to do. That is really part of our problem. Government officials( at various levels and tiers of government) who enjoy the perks of office but can not justify their cost to the National or State treasury. Perhaps we can start from here in dealing with this malady of fiscal irresponsibility at all tiers of government in Nigeria. Let square pegs be placed in square holes!!
Mazi Sam Ohuabunwa OFR