States face bankruptcy over N3t subsidy and debts – Nigeria – The Guardian Nigeria News – Nigeria and World News



The prevailing economic realities, in particular the rising price of crude oil on the international market, and the cost of gasoline subsidies, which threaten the 36 states, could aggravate the financial crisis that the states are facing before the elections of 2023.

State governors have already expressed concern and are calling on the federal government to cut subsidies and prevent states from going bankrupt.

While the Debt Management Office (DMO) has estimated the total domestic debt profile of the states and the FCT at N4.1t, debt servicing and financing a N9t budget in the states presents grim prospects for the country.

It is worth recalling that the states generated only around N849.12b of Internally Generated Revenue (IGR) in the first six months of 2021. The Lagos State Budget for 2022 which stands at about N1.7t, is double the entire IGR. With this development, only a few states can stay afloat with continued subsidy payments.

The Chairman of the Nigerian Governors Forum (NGF) and Governor of Ekiti State, Dr Kayode Fayemi, had previously expressed outrage at the profitability of the Nigerian National Petroleum Company (NNPC) Limited, adding that it does not brought nothing to the Federation Accounts Allocation Committee (FAAC) last month.

Even though crude oil is currently trading above $110 a barrel (a record high), the subsidy payment has eroded almost 90% of the funds that should go to FAAC. In January 2022, only N20.1b was handed over.

While most states struggle to survive, with paying wages already a difficult task, the states’ current economic situation is grim, with over N3t of FAAC deductions expected this year.

“NNPC has made no contribution to FAAC this month. This is not the first time that NNPC has contributed zero to FAAC. For the past two months, we have had these challenges,” Fayemi said.

According to him, it remains worrying that an increase in the price of oil in the international market will cause concern locally, adding that governors are worried about how to support the sector for a long time.

Calling for an overhaul of the oil sector, Fayemi said, “For us, as beneficiary states of the goose that lays the golden eggs, the oil and gas industry, we also want this industry to be sustained for the long term. We see areas of concern, particularly in terms of revitalizing the industry around transparency, accountability and governance of the sector.

His Ondo State counterpart, Rotimi Akeredolu, insisted the country must find a way to remove subsidies to PMS with immediate effect.

Represented by its Energy Commissioner, Razaq Obe, Akeredolu said, “Nigeria must now remove subsidies on PMS. As Governor Fayemi said, the NNPC did nothing last month. It means we are running a country that is fundamentally bankrupt.

In 2022, states plan to spend around N9t. Adamawa (N163b), Bauchi (N197b), Borno (N269b), Gombe (N155b), Taraba (N149.7b) and Yobe (N164b). Lagos 2022 budget is 1.758t, Ogun is 350.7 billion naira, Oyo is 294.7 billion naira, Osun State has a budget of 129.7 billion naira, that of Ondo State is 199 billion naira, while the budget of Ekiti State is 100 billion naira. 8b. Kwara State has set aside N190b to fund its 2022 budget, Kogi State has set aside N145.8b for the same purpose, and that of Benue State is N155.6b, Niger State is N211b, Nasarawa State is valued at N114.3b and Plateau State has a budget of N106.8b. While Enugu State budget is N186.64 billion, Anambra State is to spend N141.9 billion, Imo State is spending N381.4 billion and its neighbour, Abia State, has earmarked N147.28 billion for the spending plan. That of Ebonyi State is 145 billion naira, Akwa Ibom has planned 586.9 billion naira for the same year and Edo State is to spend 222.6 billion naira. Neighboring Delta State is spending N469.5 billion.

Others are Bayelsa (N314.46b); Croix-Rivière (N355b); Rivers (483.1b); Kano (N221b); Kaduna (N278.5b); Katsina (N340.9b); Sokoto, N188b; Zamfara, N159.5b; Kebbi, N189.2b; and Jigawa, N177b.

A former chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Sam Amadi, has insisted that the mismanagement of the national economy under the administration led by Muhammadu Buhari has worsened the plight of the states .

The former gubernatorial aspirant, who described Nigeria as a stalled economy due to low productivity and reckless policy, pointed out that the APC administration had mismanaged the economy.

“Debt burdens, low productivity and the inability to restructure the federal public service mean we cannot fund essential projects that would grow the economy and improve livelihoods. Despite falling revenues, neither the federal government nor the state governments are prudent and strategic in public spending. Corruption, leaks and leaks are worse than they were before,” Amadi added.
He pointed out that the current political leaders do not seem to have the competence to stimulate the economy towards productivity.

“We need strong economic leadership that can align states on productivity; leadership that can align incentives and enable states to become more cautious and productive. The problem is that we are coming to a presidential election where the struggle for power creates a pervasive incentive to waste resources on activities that further weaken production,” he noted.

An economist and energy specialist at the University of Ibadan, Adeola Adenikinju, said that with the state of affairs in the states, it would be increasingly difficult to meet obligations to civil servants, pensioners and contractors.

Currently, most states are struggling to implement the minimum wage, and Adenikinju added that states, where public servants run their economies, would have a greater side-effect, as their economies would suffer from a power of limited and uncertain purchase.

“The fuel subsidy is an illusion perpetrated by the middle class and the beneficiaries of the existing subsidy scheme. The losers are the poor and those who depend on the government,” he said.

A Lagos-based energy lawyer, Emeka Okwuosa, insisted that the FAAC has made states lazy, stressing that these entities must have innovative ways of generating funds.

“States need to find other ways to generate revenue to stay afloat. Most states are not viable, and agitation for the creation of new states is not feasible and, or practicable. We need to look inward and find ways to merge failed states, instead of clamoring for the creation of other states,” Okwuosa said.

An energy expert at PwC, Habeeb Jaiyeola, noted that the multiple unique revenue generation potentials across states must be fully tapped to increase each state’s RGI.

According to him, the over-reliance on the FAAC has not encouraged state governments to look critically inward to maximize their revenue-generating potential.

Jaiyeola added that the proposed grant budget would mean less funds available to FAAC to share with state governments, pointing out that the development is worsened by the Russian-Ukrainian war, which has raised global crude oil prices.

“While this has the potential to increase FAAC revenue from crude oil, it also has the potential to increase FAAC deductions due to higher subsidy costs, due to increased costs loan. It is very important and urgent that state governments seriously consider other sources of revenue like mining, agriculture, entertainment, information technology, etc., and drastically reduce their reliance on electricity. regard to the FAAC,” said Jaiyeola.