Revenue crisis: States bankrupt, unable to pay salaries, execute projects – BH investigation

The gloomy economic situation in Nigeria has had a negative impact on the 36 states that make up the federation. As a result of months of declining revenue, many of these states are currently struggling to finance governance and execute projects, as can be revealed by findings from the business sector.

According to the findings, virtually all of the 36 states that make up the federation are currently bankrupt. The only exceptions to this are the states of Lagos, Rivers, Anambra, Delta, Kaduna, Kano, and a few others. These states are the only ones that are not earning the necessary revenue to fund projects and pay workers’ salaries and emoluments.

The problem is made much worse by the drastic reduction in allocation from the federation account, which is the result of declining oil revenue and the inability of the government to significantly increase the Internally Generated Revenue (IGR) that is required to keep them afloat. Both of these factors contribute to the problem’s severity.

For example, in April 2023, the total amount of N655.932 billion that was distributed among the three levels of government (federal, state, and local) was significantly lower than the total amount of N714.63 billion that was distributed in March.

Out of the total of N655.932 billion that was distributed in the month of April, the Federal Government received the sum of N248.809 billion, the states received N218.307 billion, the local government councils received N160.600 billion, and the states that produce oil received N28.216 billion as a derivation, which accounts for 13% of mineral revenue.

It was confirmed by a comprehensive study of FAAC allocations to the three levels of government in the preceding year that the revenue generated and shared by the arms has been on a downward trend.

For instance, in December 2022, the three branches of government split N990.189 billion among themselves. However, in January 2023, the amount of money that was split fell to N750.174 billion. When compared to the amount that was allocated in December, this constitutes a significant decrease of N240.015 billion.

The downward trend continued in February 2023, when the three branches of government once again shared N722.677 billion, which was a decrease of N27.497 billion compared to the allocation that was made in January.

In addition, the Federation Account Allocation Committee (FAAC) distributed the sum of N714.629 billion between the three levels of government in March 2023. This represented a decrease of N8.048 billion when compared to the amount that was allocated in February.

The three branches of government suffered a significant revenue shortfall of N334.242 billion, according to a calculation based on what was shared during the period of December 2022 to April 2023, which spans a period of five months.

IGR generated by states, with the exception of Lagos, Rivers, Ogun, and the Federal Capital Territory (FCT), has not been encouraging. This is happening at the same time that proceeds from FAAC have been decreasing at an alarming rate.

2019 saw a total revenue of N1.33 trillion generated by the nation’s 36 states. The amount dropped to N1.31 trillion in 2020, which was a decline of N20 billion in comparison to the revenue that was generated the year before.

Things started looking up in 2021, with an increase in internally generated revenue to N1.89 million. Although the figures for the full year of 2022 have not yet been released, preliminary reports for each quarter indicate that there will be a significant increase in the revenues generated.

Despite the fact that the increases are noticeable, many experts are of the opinion that they are not proportionate to the expanding requirements and expenditures of the states.

In its most recent report on state incomes and sustainability between 2017 and 2020, SBM Intelligence found that out of the 36 states that make up the federation, only Lagos and Ogun made more in internally generated revenue (IGR) than the allocations that they get from FAAC.

However, the remaining 32 states are heavily dependent on monthly payments from the center due to the fact that their monthly IGRs are significantly lower than what they receive from FAAC.

This suggests that the affected states, including the states with abundant oil resources, are unable to survive on their own without the typical monthly handouts from Abuja.

The states, on the other hand, make up for the deficit by taking out loans from financial institutions in order to finance portions of their ongoing and capital expenditures, in addition to paying off their existing debts.

In the meantime, due to the fallout of the 2023 elections, where newly elected governors warned that they won’t honor any loan awarded to the outgoing governors after the March 11th elections, many banks have refused to grant more loans to states despite serious pressure from state officials. This was caused by the fact that newly elected governors warned that they won’t honor any loan awarded to the outgoing governors after the March 11th elections.

A number of months’ worth of unpaid salaries, gratuities, and pensions for active and retired government employees are continuing to pile up, and in some cases, years’ worth of arrears have already been racked up because of the rising cost of running the government in conjunction with the requirement to service enormous foreign and domestic debts in spite of declining revenue.

In addition, numerous unfinished construction projects can be found all over the federation. These include access roads, public schools, health care centers, bridges, and stadiums.

Even Lagos, which is widely believed to be the only state in the country that could function normally without receiving funding from the national treasury, is not exempt from the problem of inadequate revenue.

In spite of the fact that the state has maintained a pattern of paying employees’ wages between the 22nd and the 25th of every month for the past 20 years, the pace at which ongoing projects have been completed has slowed down.

Checks performed all over the state reveal that several projects are progressing at an extremely sluggish rate, while others that have already been approved have not yet begun because there is a significant lack of funding.

For example, construction works on the proposed Fagba Flyover on Iju Road have not yet begun, despite the fact that the state government demolished structures on its Right of Way (ROW) more than five years ago. This is the case even though the state government is responsible for the project.

According to sources within the Lagos State Ministry of Works, construction on the Fagba Flyover should have begun as soon as the Agege/Pen Cinema Bridge was finished.

“Before he even left office in May 2019, former Governor Akinwunmi Ambode had already secured the necessary ROW for the bridge by removing all obstacles on its part and paying full compensation to affected owners. This was before he even left office.

“However, similar to the situation with the Agege/Pen Cinema bridge, local politics during the 2019 elections prevented the start of construction on the Fagba bridge.

“Unfortunately, Covid19 made its way to Nigeria just as the new administration was planning to include it in the budget for the year 2020. The outbreak was responsible for a number of unanticipated setbacks, the most significant of which was the unfortunate economic downturn, with which many nations are still struggling to this day.

“As was to be anticipated, a great deal of construction was disrupted, most notably the Fagba Flyover and the Lagos Metro rail project.

“While construction work is ongoing on the iconic rail project, hopefully, works will soon start to start on the Fagba Flyover and others,” the senior civil servant guaranteed. “While construction work is ongoing on the iconic rail project.”

Unlike Lagos, which has a large number of liquid assets and can withstand extended revenue shortfalls from the center (as of the first quarter of 2023, it had already generated N179.912 billion, which is equivalent to about N60 billion monthly), other states do not have such abundant resources.

In addition to 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.

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According to the advocacy group, states such as Abia, Adamawa, Ebonyi, Ondo, and Taraba owe payments that date back no further than three years.

In more detail, the report stated that the state of Abia currently owes its workers at state tertiary institutions the equivalent of six months’ worth of salary, while the state of Ebonyi has not paid its pensioners in the most recent six months.

Similarly, secretariat workers in Taraba State have been complaining of irregular salary payments for up to six months. In Ondo State, lecturers at state-owned tertiary institutions and midwives working in state-owned hospitals have not been paid for the past four months.

According to the report, eight of the remaining states out of the remaining 23 that can meet their recurrent expenditure and loan repayment schedules with their total revenue have revenue leftovers that are so small (less than N6 billion) that they still have to borrow heavily in order to fund any meaningful capital expenditure. This is despite the fact that these states can use their total revenue to meet both of these schedules.

According to the report, the states of Zamfara, Ondo, and Kwara are the ones that have been affected the most by this phenomenon.

A developmental economist by the name of Dr. Tajudeen Idris, who was troubled by the development, issued a warning that the state of industrial harmony that is currently being experienced in the states could soon be shattered if the trend is not reversed.

“The states are in serious trouble right now. And the way I see it, based on how the economic parameters are shifting, it is not going to end anytime soon.

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