Fiscal federalism viability of states


A recent report published by  Vanguard  has pointed out that only six states out of 36 were able to outpace the Federation Accounts Allocation Committee, FAAC, allocations to sustain governance with internally generated revenue, IGR, in 2016. Though this is even a base-level statistical representation of the problem, it shows heavy dependency of the states on federal allocations for survival.

Beyond this, the details show also that none of the states could have a balanced budget without the FAAC, implying that the six that did well in IGR operated in deficit. In fact, the best performing, Lagos, ended up the most indebted to bond investors, banks and foreign creditors. A more distressing situation is the IGR-to-recurrent expenditure ratio which averages at about 9.5%. Consequently, and not surprisingly, there is a huge backlog of unpaid salaries across virtually all the states including some of  those whose IGR outpaced federal allocations.

We are now more concerned about the dispositions of the state governments in this poor financial health. Some of the Governors are now saying they cannot resolve the salary crises without the Paris Club Debt Refund (PCDF). This comes against the backdrop of alleged diversion of the PCDF to interests other than the development or welfare of the states and the citizenry. So far, over N560 billion bailout funds has been disbursed to the states between 2015 and 2016 by the Federal Government for the purpose of offsetting outstanding salaries. The monies were spent yet huge unpaid salaries persist.

We note that the fiscal imbalances at the state and local government levels have been with Nigeria for a long time, even during boom times.

Therefore, rather than hinge a solution on  hopes of boom times returning, we recommend a form of fiscal federalism that will make states financially independent even if it means opening them up to risks of failure, which can only happen if the chief executive (the Governor) cannot run an efficient government.  States will have to  learn to elect governors who can manage their economies effectively.

We are aware of the many controversies and arguments around true federalism, resource control and restructuring which, we strongly believe, will greatly promote efficiency in governance and self-reliance among all  tiers of government.

We submit that more than half of the problems surrounding separatist and related agitations would be effectively resolved under a fiscal federalism that gets citizens focused on the quality of governance at their states for their welfare since most of the resources they need would now be self-generated and managed.

Governing a state should be a serious business, an enterprise that guards against bankruptcy. This will commit governors to drastically cut the cost of governance and promote efficient service delivery.



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