Revenue crisis: States broke, can’t pay salaries, execute projects – BH investigation

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The bleak economic situation in Nigeria has had a negative impact on the federation’s 36 states, with many of them currently struggling to finance governance and execute projects due to months of dwindling revenue, according to Business findings.

According to findings, with the exception of Lagos, Rivers, Anambra, Delta, Kaduna, Kano, and a few others, virtually all of the 36 states of the federation are currently broke and are not earning the necessary revenue to fund projects and pay workers salaries and emoluments.

The problem is exacerbated by the drastic reduction in allocation from the federation account as a result of dwindling oil revenue and their inability to significantly raise the Internally Generated Revenue (IGR) required to keep them afloat.

For example, the three tiers of government, the federal, state, and local governments, shared N655.932 billion in April 2023, compared to N714.63 billion in March.

While the Federal Government received N248.809 billion out of the total N655.932 billion distributed in April, the states received N218.307 billion, local government councils received N160.600 billion, and oil-producing states received N28.216 billion (13% of mineral revenue).

An in-depth examination of FAAC allocations to the three tiers of government over the last year confirmed that revenue generated and shared by the arms has been declining.

For example, while the three branches of government shared N990.189 billion in December 2022, that figure dropped to N750.174 billion in January 2023. This represents an N240.015 billion decrease from the December allocation.

The downward trend continued in February 2023, when the three branches of government shared N722.677 billion, a N27.497 billion decrease from the previous month’s allocation.

Also in March 2023, the Federation Account Allocation Committee (FAAC) distributed N714.629 billion among the three tiers of government, an N8.048 billion decrease from February’s allocation.

A review of what was shared between December 2022 and April 2023, a five-month period, reveals a significant loss of N334.242 billion in revenue to the three branches of government.

Meanwhile, while FAAC proceeds have been declining, IGR generated by states other than Lagos, Rivers, Ogun, and the Federal Capital Territory (FCT) has been disappointing.

The 36 states generated N1.33 trillion in revenue in 2019. The amount fell to N1.31 trillion in 2020, a N20 billion decrease from the previous year’s revenue.

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In 2021, internally generated revenue increased to N1.89 billion. The full-year figures for 2022 have yet to be released, but early quarterly reports indicate a significant increase in generated revenues.

While the increases are significant, experts believe they are insufficient to meet the state’s growing needs and expenses.

According to SBM Intelligence’s most recent report on state incomes and sustainability from 2017 to 2020, Lagos and Ogun out of the 36 states of the federation generated more IGR than FAAC allocations.

The remaining 32 states, on the other hand, rely heavily on monthly payments from the center because their monthly IGRs are much lower than what FAAC provides.

This implies that the affected states, including the oil-rich ones, cannot survive without the usual monthly handouts from Abuja.

The states, on the other hand, make up the difference by borrowing from lending institutions to fund a portion of their recurring and capital expenditures, as well as to service old debts.

Meanwhile, as a result of the fallout from the 2023 elections, in which newly elected governors warned that they would not honor any loan awarded to outgoing governors after the March 11th elections, many banks have refused to grant more loans to states, despite intense pressure from state officials.

Several months, and in some cases years, of unpaid serving and retired workers’ salaries, gratuities, and pensions are daily accumulating as a result of the rising cost of running government, combined with the need to service massive foreign and domestic debts, despite diminishing revenue.

In addition, abandoned projects such as access roads, public schools, health care centers, bridges, and stadiums litter the federation.

Even Lagos, widely regarded as the only state in the country capable of surviving without federal funds, is not immune to the revenue crisis.

Though the state has consistently paid workers between the 22nd and 25th of each month for the past 20 years, the previously fast pace of ongoing projects has slowed.

Checks around the state show that several projects are moving at a glacial pace, while others that have already been approved are yet to begin due to a lack of funds.

For example, despite the state government demolishing structures on its Right of Way (ROW) more than five years ago, construction on the proposed Fagba Flyover on Iju Road has yet to begin.

According to sources in the Lagos State Ministry of Works, the Fagba Flyover should have begun immediately after the Agege/Pen Cinema Bridge was completed.

“Before even leaving office in May 2019, former Governor Akinwunmi Ambode secured the necessary ROW for the bridge by removing all obstacles and paying full compensation to affected owners.”

“However, as with the Agege/Pen Cinema bridge, local politics during the 2019 elections stymied the Fagba bridge’s launch.”

“The new administration intended to revive it in the 2020 budget, but Covid19 landed in Nigeria.” The outbreak caused several unanticipated hiccups, most notably the unfortunate economic downturn, which many countries are still dealing with today.

“As expected, many projects were impacted, most notably the Fagba Flyover and the Lagos Metro rail project.”

“While construction on the iconic rail project continues, we hope to begin work on the Fagba Flyover and other projects soon,” the senior civil servant assured.

While Lagos is well-capitalized and can withstand prolonged revenue shortfalls from the center (it already generated N179.912 billion/about N60 billion monthly in the first quarter of 2023), other states are not.

Apart from owing workers several arrears of salaries, leave bonuses, promotion arrears, a monthly pension, and co-operative deductions, as well as pensions and gratuities of retirees, several states, including Osun, Ondo, Kogi, Plateau, Adamawa, Bauchi, Gombe, Cross River, Benue, Taraba, and Abia, have abandoned projects scattered across their cities and towns.

According to the advocacy group, states such as Abia, Adamawa, Ebonyi, Ondo, and Taraba owe payments for three years or less.

According to the report, Abia State owes its state tertiary institution, employees, six months’ salary, while Ebonyi has not paid its pensioners in the last six months.

Similarly, secretariat workers in Taraba State have complained of irregular salary payments for up to six months, while lecturers at state tertiary institutions and midwives in Ondo State have not been paid in the last four months.

The remaining 23 states that can meet recurrent expenditure and loan repayment schedules with their total revenue have revenue leftovers that are so small (less than N6 billion) that they must borrow heavily to fund any meaningful capital expenditure, according to the report.

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According to the report, the worst-affected states in this category are Zamfara, Ondo, and Kwara.

Concerned about the trend, Dr. Tajudeen Idris, a developmental economist, warned that the industrial harmony currently enjoyed by states could be shattered if the trend is not reversed.

“The states are in a lot of trouble.” And as I see it, it is not going to end soon judging by evolving economic parameters.

“I see no other way out (apart from allowing affected states to go bankrupt), then bailing them out through intervention programs like the ‘budget support’ used by President Mumammadu Buhari to halt the drift into anarchy in states when he assumed power in 2019”, declared the expert.

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