Monday 15 June 2015

Improving Fiscal Governance At The State Level - by Eze Onyekpere

Hard times provide the opportunity for deep thinking, creativity and innovation. Obviously, the hard times are here as the Nigerian economy faces challenges on all fronts. 

First, the price of crude oil, which is the mainstay of the economy, collapsed from over $100 per barrel, pre-June 2014, to about $50 per barrel. Second, the country’s crude stock is no longer sought after by international refineries and we have large cargoes of unsold crude stored in super tankers in the sea awaiting buyers. We are still producing crude oil with the unsold stock outstanding. Oil revenue provides up to 70 per cent of Federation Account revenue normally shared by the three tiers of government. In this scenario, the fiscal buffers that would have cushioned the fiscal crisis have been drawn down and only about $2bn is left in the Excess Crude Account.

With the exception of two or three states, virtually all the states in the federation depend on statutory allocations for their survival. Yes, survival in terms of recurrent and capital expenditure. In many states of the federation, workers are owed arrears of salaries and there seems to be no immediate plan about where to get the money from to settle the indebtedness. Capital projects have ground to a halt and there is an air of despondency across the land. Media reports indicate that states owing salaries or pensions include Abia, Adamawa, Akwa Ibom, Anambra, Bauchi, Bayelsa, Borno, Benue, Cross River, Delta, Edo, Ekiti, Gombe, Imo, Jigawa, Kaduna, Kano, Katsina, Kwara and Kogi. Others are Ogun, Ondo, Osun, Oyo, Plateau, Rivers and Zamfara states. But the political class at the state level, led by governors, seems not to understand the magnitude of the fiscal crisis. For them, it is still business as usual. The desperation with which political offices were contested at the state level created the picture that the contestants understood the challenges ahead. Many of the newly elected governors are now regaling Nigerians with tales of empty treasuries and overbearing debt burdens.

We need to understand simple propositions. The fiscal crisis at the state level is directly and indirectly proportional to the level of fiscal rascality, lack of transparency and planning, and unbridled mismanagement of resources at that level of governance. It is also tied to a budgeting process that is not evidence-led and to the docility of citizens that shy away from holding elected leaders accountable. Governors run the states as their personal fiefdoms; they brook no opposition and personalise the instruments of governance to respond to their whim and caprice only. In this scenario, budgets provide no guide to the management of state resources and the budgets are hardly available to the public. For Nigerians in this day and age to be governed by emperors at the state level who think that the budget is a secret document that should not be made available to citizens is as unfortunate as the outcome of such governorship imbecility. Thus, state budgets are filled with frivolities as the civil society merely grumble and take no action. Even the lead intervention on the budget which the Nigeria Labour Congress used to take in the military days is now history.

The state House of Assembly that is supposed to provide checks and balances and oversight functions in most instances is filled with the governor’s lackeys and nominees and they simply rubber stamp whatever comes from the Government House. This is made possible by the lack of internal democracy in parties where the governor as the leader of the party at the state level determines who gets what in terms of nominations and tickets to fly the party’s flag at any level. Further, many state legislators lack functional education to perform their duties. When they get elected, they fail to utilise the plethora of training and courses provided by state funding and development partners. When money is made available to them to hire assistants, consultants and experts to facilitate the legislative job, they end up not utilising the money for the purpose. At the end of the day, we have legislators who do not understand what they are elected to do. They identify their job schedule as starting and ending with supporting the state governor and endless politicking.

Why would states with huge statutory allocations like Rivers and Akwa Ibom owe workers? And these states also have a huge debt profile. What exactly did the governors do with the state resources? In the same Rivers State for example, the new governor just got approval to borrow N10bn from Zenith Bank to run the administration. The request and the approval are illegal and unlawful considering the clear provisions of the Fiscal Responsibility Act which only allow borrowing for capital expenditure and human development. Running the administration is a euphemism for recurrent expenditure especially overheads. And the approval in the rubber stamp legislature was virtually unanimous. This scenario is replicated across the federation and it is only during periods of political disagreements that issues are raised about this kind of fiscal recklessness. The dispute between a faction of the Enugu State House of Assembly and the outgone governor of the state is a case in point.

Thus, the scenario is to wait for the end of the month to share the statutory allocation coming from Abuja. No attempts and reasonable efforts are made to tap Internally Generated Revenue because the government knows that it will be compelled by citizen’s power to open up the fiscal space if it insists on getting everyone into the tax net. So, taxation and IGR source are severely limited to those who suffer compulsory deductions from their salaries and a few other avenues.

Hardly has any state conducted a public expenditure review and sincerely implemented the findings of the review. Since 2007, only a few states of the federation have enacted the Fiscal Responsibility and Public Procurement Laws. And where they have been enacted, the institutions to operationalise them have either not been established or where established, have been poorly funded to ensure that they cannot serve as a check on the executive. Audit reports and follow-up on the audits are a virtual luxury; value for money is relegated and at the same time, we believe that state resources will not be mismanaged.

There is a way out of the dwindling oil price. It is the age old taxation and raising of internal revenue. For the people to willingly accept to pay and increase the revenue available in government coffers, governors must agree to open up the fiscal space and process. They must render monthly, quarterly half-yearly and yearly accounts of the resources placed at their disposal by citizens and what they did with the resources. They must also cut down on the costs of governance; long motorcades, huge security votes and bulging overheads should be reduced to manageable levels. Governors and legislators should stick to their official and approved remuneration which is reasonable as against the scandalous perks of office which they appropriate to themselves. Inflation of contracts should also be a thing of the past.

Over the medium term, states may consider cutting down their bureaucracies to manageable levels that can be financed with their IGR so that statutory allocations are dedicated to capital expenditure. Finally, the citizens and the civil society must wake up to the unfortunate but true fact that our states are mismanaged because we failed to hold elected officials accountable.

- @censoj   

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