The Finance Minister, Mrs. Kemi Adeosun has said that the federal government would not make deductions from states’ Federation Account allocations for the month of March on their restructured loans so as to allow them pay their workers’ salaries.
Briefing journalists yesterday at the end of a meeting of the National Economic Council (NEC) which held at the State House in Abuja, Adeosun said that the decision to stop the deductions was informed by the fact that states do not have enough resources to meet their obligations.
She, however, ruled out a second bail out for the states, stressing that the moratorium should allow the states to meet their obligations.
According to her, low receipts from crude oil sales means that there is insufficient revenue to share, thereby making it harder for states to survive.
She said: “This is an update on the financial situation in the states: it was discussed extensively that currently the Federation Account receipts are among the lowest that has been seen in recent memory.
“We are looking at N299.7 billion this month (for March allocation) and that is because of the very low oil prices recorded in February and January, if you remember oil prices went as low as $28 and $31 and that has affected receipts to the Federation Account.
“As a result of which I approached the president at the behest of the state governors that we defer the loan deductions from the Federation Account entitlements and the aim of this is to ensure that we support the states through this difficult period to enable them meet their salary obligations.
“The government is very committed to stimulating this economy and recognises that the ability of states to meet salary obligations is very important to getting the economy moving again, and so to that end, the president approved that deferral.”
Adeosun said states had been asked to submit financial data that would allow the federal government to work on a model and predict how much support in terms of loan deferrals to be given to get through this period until the economy begins to recover.
She said: “I want to emphasise that this is not a bailout, it is a deferral, postponement of deductions rather than a bailout just to allow the states to get the cash they need to meet their salary obligations.”
The minister said all the state governments endorsed the request to provide financial data and endorsed the request to work on biometric data and other initiatives to cleanse out fraudulent entries on their payrolls.
She said: “You might call them ghost workers but it is being done at the state level very aggressively and the efficiencies that the state governors have already committed to, they all endorsed those initiatives as part of the support that we are trying to put in place.”
Adeosun said the approval she got from the president to defer the deductions was for the March allocation that was shared yesterday.
“The approval I have is for the current month (March) but with a proviso on the fiscal reforms that would be taken by the states. What we discussed is that the current situation in the economy requires some action and what we need to do is to understand the financial profile of states in detail, so that we can understand how long we need to support them with loan deferrals.”
The minister also allayed fears that the policy would have a negative effect on the economy.
“On the effect of the deferrals on the economy, I think I will be swift to ask what is the effect of non-payment of salaries on the economy? That for us is really the issue. We have to put money into people’s pocket so that people start spending just to get the economy moving.
“Nobody stimulates the economy by austerity but by spending. So in some states, as you know, the state government is the highest employer of labour, so if the state government is unable to pay, nothing happens.
“We have prioritised getting the states back into good financial health. Now, part of that is this commitment to fiscal sustainability and that is why we have asked the states to commit to cleansing their payrolls, commit to efficiency, and maximising their internally generated revenue.
“We have asked them to give us their financial data so that we can work together to create a financial module and understand what government needs to do to support the states.
“Of course we are borrowing, but we have got to make sure that we are borrowing to support the states that are fiscally sensible and prudent in their managing money.
“So the answer is that we have a month (March) guaranteed, but we are asking for information from the states to enable us build a module so that we would know if it is three months, six months or however many months to supplement the shortfall to ensure that within reasonable parameters a majority of the states can pay salaries.
“And that is taking into account that different states have different obligations and different profiles, but the idea is to support them to be able to pay,” she said.
At the NEC meeting, Adeosun said she presented the report on the balance in the Excess Crude Account (ECA), which she said stood at $2.75 billion.
She also said that she gave an account of interest that had been received since the last update.
She said: “The second update given was on the constitution of the search committee for the board of the Nigerian Sovereign Investment Authority (NSIA; Sovereign Wealth Fund).
“I gave that presentation and nominated six persons from the six geopolitical zones, four men and two women, who would search for board members for the Nigerian Sovereign Investment Authority.”