The federal government has announced that it is giving the financially insolvent states fresh bailout loans of N90 billion. It will be the third time in less than a year that the Buhari APC federal government has been constrained, against its better judgment, to come to the rescue of these 27 insolvent states with huge bail- out funds. As expected, the two previous financial bailouts did not solve the deep-seated financial problems of the states. The funds were merely used by the insolvent states to clear up part of their outstanding salary arrears. After that, new arrears of salary piled up with the affected states not being able to do anything about it. What they currently receive monthly from the federation accounts is not enough to meet their current basic monthly wage bill. And, predictably, they have not been able to generate new funds internally to fill this gap in their revenue.
But after receiving billions of naira in previous bailouts, the report of a federal financial investigation team into the disbursement of the federal bailout funds showed that many of the governors of the insolvent states simply diverted the bailout funds to personal and other non productive purposes. The question now arises whether these federal financial bailouts provide a final solution to the worsening financial plight of the insolvent states. In other words should the federal government continue to bail out these insolvent states? Is this financially sustainable?
I do not think so. Even if these bailouts are sustainable, it is a negation of the federal system of government for the federal government to continue to hand the state governments financial bailouts. It is tantamount to rewarding incompetent and corrupt state governments. Except in emergency situations the federal government is not under any constitutional obligation to give the states financial handouts. It derogates from the financial autonomy of the states which demands that, in a truly federal system of government, the states should generate the financial resources required by them to run their respective governments. If they are not able to do so, then they are obviously not financially viable and should be scrapped. Handing them bailouts, which have to be repaid, is an intolerable financial burden on our country and tax payers.
These insolvent states were created during the long period of military rule in Nigeria without any thought being given to their financial viability. After independence in 1960, only the then Mid-West region was created constitutionally from the then Western Region during the Balewa civilian federal government. And this was made possible only by the 1962 internal crisis in the AG, the ruling party in the Western Region. The creation later of so many new states was a major political blunder of military rule in our country. It made military rule popular, but it did not fully consider the economic implications involved in the creation of such a large number of new states. The creation of these states was certainly politically motivated. In May, 1967, General Gowon first divided the country into 12 states. This was after Ironsi’s Unification Decree 34 of May 24, 1966, that purportedly dissolved the existing four regions into provincial administrations. The decree was unpopular in the country and led to the military ouster of Ironsi from power.
Gowon’s purpose in creating the 12 new states was to undermine Ojukwu’s bid for the secession of the so-called Biafra from Nigeria, and to legitimise his military government. The decision was popular with the ethnic minorities in the old Eastern Region that had been agitating for years for a separate state of their own; in much the same way as the minorities in the old Western Region had also been demanding the creation of a separate Mid-West state from the old Western Region. Since then, under military rule, the number of new states has increased to 36 now. The surge in oil revenues masked the fact that, without the oil revenues, most of these new states were not financially viable. With so many unviable states the centre became stronger and more financially dominant. What now pass as states were, in fact, administrative provinces inherited during colonial rule. This was why our federal system of government at independence was based on only three regions, not the multiplicity of states that we now have. The departing colonial power had refused to create new states.
In their defence of financial bail outs, the states argue that it is the fall in their share of revenue from the federation account that is responsible for the financial mess in which they now find themselves. But the source of their financial plight goes beyond that. The truth of the matter is that they have just been as financially profligate and reckless as the federal governments we have had to put up with for a long time. Many of the state governors are under investigation by the EFCC for massive corruption. Examples of these corrupt and convicted state governors include Ibori of Delta and Alam of Bayelsa. If the state governors are thoroughly investigated as they should be, I have absolutely no doubt that the findings of such investigations will be just as shocking as the current revelations regarding the vast scale of corruption under the Jonathan PDP federal government.
My second reason for objecting to the indefinite bail out of the states is that the federal government itself is, as we have seen, in an equally deplorable and shocking financial situation. It is desperately short of funds too and is having to put on hold many critical infrastructure capital projects. It is currently running a huge deficit budget of roughly 50 per cent and is hoping to borrow half of this year’s budget from external sources. But external lenders generally refrain from lending for budgetary support, as is the case now in our country. So, from where will the federal government get the bailout funds for the financially ailing states? The answer is that it will have to resort to more borrowing from the CBN. In other words, new money will be created to fund these insolvent states. This will have the predictable effect of crowding out borrowing by the private sector, and of undermining stability in our macro economy. Our domestic debt, already bigger than our external debt, will increase further.
The media reported further that the federal government intends to impose some stringent financial conditions on the states being bailed out. But these conditions will not work and will not deter the governors of the states concerned from continuing with their financial profligacy in the belief that they will be bailed out again by the federal government. At that point it will be difficult for the federal government to cut them off from the bailout funds on which they will have become utterly dependent. One of the arguments advanced by the military in support of the creation of new states was that it would spread economic development in the new states to the grass roots. But that has not proved to be the case. Apart from such symbolic projects as flyovers in the states capitals, new official residence for the governors, new states assemblies, a few model colleges, and sub-standard state universities, the poor in the states cannot be said to have really benefitted from the creation of states, where the political elite continue, with unabated vigour, to cream off revenues accruing to the states. The real beneficiaries of the financial bailouts are the rich, not the poor. In fact, the poor are worse off now than ever before. We are a poor country and we cannot expect to build a prosperous economy on handouts to insurgents and militants, or on subsidies and bailouts to insolvent states. A few years ago hefty financial bailouts were given to the commercial banks. Are they healthier or more efficient now? Many of them are already in distress.
The long term solution to this lingering financial mess in the states is to device the constitutional means of reducing the number of states to not more than 12. It is even better to collapse them into six regions. This is what the call for the restructuring of Nigeria’s federalism should be about. It is far easier and more economical to manage six or twelve states than the existing 36 with all the paraphernalia of pseudo governments that cannot inherently carry out their basic financial obligations. Obviously, this will be politically difficult. The only alternative is for the federal government’s share of the national revenue to be reduced and distributed among the states. But while the existing 50 per cent share of the federal government in the national revenue is too large, due care should be taken in this regard. We cannot afford to have a weak federal government that is placed in such an invidious financial situation that it cannot carry out its basic responsibilities to the nation in defence, national security, and external affairs, Already the corporate existence of our country is being threatened by several centrifugal forces. We need a strong federal government and institutions to hold our fragile country together.
NATION
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