AS it so often happens, the best hope for
answers to thorny issues is by relying on history.
To that effect, I would like to turn to the Greece
financial quagmire, her negotiation for a bailout
by the eurozone authorities which has been very
intense, if not controversial,and incidentally has a
parallel to the recent situation where some
financially insolvent states in Nigeria have
requested for and received approval by president
Buhari for a similar financial bailout.
The Greece experience, to some extent differs
from the situation in Nigeria because, while it’s
the states that are requesting for bailout from
the the Federal Government from the financial
mess in which they are embroiled and reflected
in their inability to pay workers salaries, (up to
16 months backlog in some states) it is unlike
the Greeks that are seeking bailout to avoid
being declared bankrupt by the World Bank and
Eurozone authority which is a regional supra
government of sorts.
Technically, both debt situations are similar
because they are cases of insolvency to be
resolved through fresh injection of cash into the
economy. Greece banks have now been shut
down with only a window of equivalent of
maximum $60 per day allowable for withdrawal
via ATM just as approximately 26 Nigerian
states which have been unable to meet salary
obligations to civil and public servants require
fresh funds. For Greece to remain part of the 19
nations Eurozone, there are basic economic
standards that it must exhibit and conform with.
One of the requirements entails yielding of
sovereignty over how she manages her financial
affairs to the zone’s authorities comprising
European Commission Bank, ECB and European
Comission Group, etc.
Greece, which is the cradle of democracy, if you
recall the historical antecedents of Athens, the
capital of Greece in the evolution of democracy
and centre of civilization,has twice sought for
bailouts in the past hence it’s having a tough
time convincing the major creditors led by
Germany and France for a third bailout. With a
whooping debt profile of some $96 billion dollars,
Greece needs to first of all, cough out between
$7 to $10 billion to the ECB to get her economy
cranking again. To qualify for the loan, Eurozone
leaders are demanding that Greece meets up
with some severe conditions which include far
reaching reforms in the economy such as
privatization of public assets, Value Added Tax,
VAT and Pension tax amongst others to be
enacted into law by Greece parliament before
drawing down on the funds to be escrowed and
co-managed by the ECB.
Compliance with the reforms recommended by
Eurozone authorities entails application of
austerity measures which most Greeks loathe
and which government has been flouting hence
the economy has further sunk into deeper
financial debt burden after two previous bailouts
in the past five years. If the parties had not got
to a yes agreement, the alternative would have
been to get Greece forced out of eurozone for
possible re-entry only after the next five years
when that country might have got her financial
act together. Perhaps the tough stance by the
ECB and the European Commission is derived
from having been disappointed by two previous
failures by Greece to turn her economy around
after bailouts but it is a lesson that Nigerian
authorities must learn with respect to the huge
sum ($2.1b from NLNG and Shell plus
N250-300bn from CBN) that President
Muhamadu Buhari has recently approved for
disbursement to the debt laden states without
the necessary tough conditionality similar to the
type imposed on Greece by the Eurozone
authorities.
Of course I’m not by any means suggesting that
the Federal Government bailout should be a
poisoned chalice or that state governors should
be put in a financial strait jacket but I’m of the
view that the benefiting state govts should be
put under watch by professional fund managers
as guaranty for accountability and recoupment of
the facility. Although the 26 or more Nigerian
states may not be third time bailout seekers like
Greece, but must we wait for them to default
three times like Greece before strict conditions
are applied to ensure that they don’t fall back
into similar debt trap that Greece is entangled
with after they receive the first bailout? While not
assailing the decision to bailout the states as
the initiative is bound to reflate the already
sluggish economy, especially at the micro level,
some of us are of the view that President Buhari
might have extended the hand of support to the
ailing states without the required strict
repayment plans (especially with respect to the
N250-300 CBN loan) tough enough to
discourage the governor’s,like the mythical Oliver
Twist, from coming back for more.
Ideally, in the absence of a cabinet or an
economic council ,a simple approach would have
been for mr president to invite banks to
negotiate the bailout with the states on terms
similar to what the International Monetary Fund,
IMF or ECB would demand.
After coming to an agreement to grant the soft
loan the federal govt could have provided the
guaranty to the banks by depositing the $2.1
billion NLNG and Shell tax revenue plus CBN
#250-300b with the banks as guaranty.
The Debt Management Office, DMO already
mandated to renegotiate the estimated N660
billion naira states debt to Deposit Money Banks,
DMBs and CBN directed to raise another
N250-300 billon soft loans to the states could
have been joined by any of the reputable
international financial consulting firms like
Pricewaterhouse Coopers, Ernst&Young,KPMG
and other local Nigerian financial outfits to
hammer out a sustainable debt repayment
framework that would help the states pay
backlog of salaries and at the same time,restart
growth.
Repayment framework
Amongst other benefits, in the course of
negotiating the bailout,the areas of profligacy by
the bankrupt states would have been identified
with a view to plugging the suspected gapping
holes through which finances have been
leaking.As it now stands,that opportunity might
have slipped as Nigerians and policy makers
may not have the opportunity of highlighting and
proffering solutions to the apparent squandering
of public funds by some of those entrusted with
its husbandry, if the fraud allegations being
leveled against some ex governors currently
being arraigned by anti graft agency-EFCC is
anything to go by. Understandably, most
governors are not trained economists or
accountants so the tendency to be indisciplined
or imprudent in funds management is high and it
is not helped by the pressure to implement the
lofty programs and policies promised during
electioneering campaigns.
On a brighter note, it is however encouraging
and commendable that in some instances,what
has led to the debt trap in some states is cost
over run spurred by the desire to roll out more
infrastructure by some governors .The foregoing
assertion is derived to the fact that to a large
extent ,it is aggressive and frantic efforts by
governors to implement visible projects that
would benefit the populace in order to generate
votes in order to guaranty their re-election to
office (as opposed to the previous penchant for
frittering away the state resources with the plan
to bribe electoral bodies and tribunals for re-
election) that is now the prime motivator for the
massive deployment of financial resources that
has put some states in financial dire straits.
Financial dire straits
This is in light of the believe that it has become
impracticable to rig elections,(with the current
improvements in voters awareness and voting
methods) and therefore much easier to provide
the so called dividends of democracy and get
legitimately rewarded by the electorate with their
votes.
As a testimony , in some states, modern school
buildings, laboratories ,hospitals,dual carriage
roads and sometimes over head bridges as well
as futuristic stadiums are springing up and
standing as visible evidence of the collective
Standing Payment Orders, SPOs with the banks,
totaling about (#660b) that they have more or
less tied their monthly federal allocations used
aa collateral for the borrowed funds.
By doling out bailout money in excess of four
hundred (#400b) billion naira so fast and
without being subjected to stringent financial
scrutiny, the federal govt might have also lost
the opportunity of using the debt owed by states
to civil and public servants as bargaining chips
in negotiating with Nigeria labor Congress, NLC
in the event that it chooses to end the fuel
subsidy and possibly sale of public refineries.
Undeniably,it is the corruption in subsidy
application that has exerted the most
excruciating and painful drain on public funds
that some analyst estimates to be in excess of
$3 billion annually, however NLC would
typically resist any attempt to remove fuel
subsidy or sell off the refineries as they did in
2010 when late president Umaru Yar’adua first
removed subsidy and was forced to increase
minimum wage which ballooned national wage
bills.
Similarly, in 2012 , former president Good-luck
Jonathan was compelled to roll back most of the
fuel pump price increase which he had imposed
in January following labour strike and national
protest led by civil society organizations and
supported by the APC which was the opposition
party at that time.
If the financial bailout initiative is allowed to go
through the usual exacting and prudent financial
process of granting loans, federal govt might use
it (payment of outstanding civil/ public servants
salaries) as a bargaining chip in the horse
trading with the NLC because for any negotiation
to be satisfactory, both parties must give up and
gain something and the agreement to pay
outstanding workers salaries in the affected
states would have met that criteria.
However, if the backlog of salaries are paid off
before the federal govt decides to engage in
negotiation for removal of subsidy and sale of oil
refineries,NLC will seek a recompense like
another salary increase for workers which in the
light of the current oversized recurrent
expenditure in the national budget at 70% versus
30% skewed in favor of overhead charges in not
feasible. So l’m scratching my head to phantom
what the federal govt would be offering NLC
apart from the promise that the funds saved or
recovered would from oil subsidy be geared
towards provision of social services to ameliorate
the associated subsidy removal consequences of
higher cost of transportation,expensive
food,prohibitive house rents etc.
That would be a sort of dejavu for me as the old
Petroleum Trust Fund, PTF during the Sanni
Abacha rule of which president Buhari was
chairman or Sure-P of the Jonathan era ,
Christopher Kolade would simply be re-enacted.
The question would then be, how efficacious
were the social services rendered by the
aforementioned task forces mischievously tagged
quasi/parallel govt compared to when the
services are rendered through conventional
platforms like the ministries and departments?
On an optimistic note,the Central Bank of Nigeria,
CBN has already embarked on capital control by
denying access to the scarce foreign exchange
to the importers of tooth pick and such inanities
that could be produced locally which has been
parodied by the Economist magazine of the UK.
As CBN governor, Godwin Emefiele recently
reported(maybe to the consternation of the
editors at Economist magazine), Nigeria’s
foreign reserve has grown from $29 to over $31
billion perhaps owing to the introduction of that
capital control measure.
My concern and worry are that without the
states being compelled to drastically cut cost of
governance such as reduction in the unwieldy
number of political aids,curtailing of jumbo
emoluments to legislators,unbridled acquisition
of vehicles annually,wanton hiring of private jets
( which put unnecessary pressure on scarce
FX),reduction of unproductive overseas trips and
other areas of economic leakages, Nigerian state
governors, may soon return (Greece style) cap in
hand to abuja for another financial bailout.
This is fueling the fear that the bailout of
financially ailing states without strict recovery
terms entrenched in curbing of the gluttony of
public funds may not be sustainable as it is
unlikely that the NLNG and Shell $2.1b tax
income which were principally applied in the
bailout, would return such hefty dividends again
in the nearest future. More so because the price
of oil/gas may not bounce back from the
current $50.00 region to all time high of $140.00
in the boom days especially as oil rich Iran is
about to be unshackled from global sanctions
that barred that country from trading her oil
internationally.
Nevertheless, it is never too late to make
amends to the seeming egregious mistake of
offering to rescue states without strict
conditions. To this end, a ‘bad bank’ with a
focus on states, fashioned after Asset
Management Company of Nigeria,AMCON, the
Special Purpose Vehicle, SPV launched to save
Nigerian depositors from the ugly fallouts of
distressed banks a few years ago,could be
replicated with the DMO and CBN already
mandated, as the drivers of the initiative.
Independent
financial firms and experts earlier listed could
also be invited to join in setting up a robust
platform that would help restructure and reform
financial expenditures in states with the aim of
steering governors towards prioritization of
development as the main focus of governance.
For instance,the Greece bailout makes it
mandatory for the ECB to co-Manage the bailout
funds with the country to ensure compliance. As
most analysts have argued, availing state
governors of public funds outside of the state’s
legitimate monthly allocation from federation
account must be backed with a robust
restraining mechanism to ensure prudent
deployment of the funds,otherwise the injection
of more precious public funds would amount to
another cash bonanza at governors beck and call
and deployable for their whims and caprices and
in tune with their epicurean tastes.
As most Nigerians are aware,CBN policy of
advancing two (2) billion naira to some state
govt that was expected to contribute counterpart
funding of fifty percent (50%)half of CBN funds
as soft loans was never deployed for the purpose
of supporting small and medium scale
enterprises ,that were targeted but used for
political patronage or outrightly converted by
some governors to their personal use. In the
light of the above, the proposed CBN packaged
#250-300b to rescue states from debt burden
may go the same way if iron clad framework to
manage the funds is not instituted hence the
recommendation of the AMCON type safeguard.
Regrettably, in the absence of such
arrangement,l dare to wager that, with
international crude oil price continuing to remain
bearish rather than bullish,considering the
imminent lifting of the UN trade sanctions
against Iran with huge oil reserves,it would be a
question of how soon state governors would
return to Aso Rock again on bended knees to
hustle president Buhari for another bailout owing
to unsavory outcomes with workers at the
receiving end owing to another financial
indiscipline and delinquency by governors.
Magnus Onyibe, a former commissioner in delta
state,development strategist,futurologist and
alumnus of Fletcher School of Law and
Diplomacy sent this piece from Abuja.
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