…Politics still clouds negotiations
The plan by the Federal Government to commence deduction of the bailout funds advanced to 35 states in 2016, totaling about N614 billion to enable them offset arrears of pensions, salaries and allowances owed to their workers, is already sending shivers across the states. Governors of some of the affected states are said to be jittery, as this will further shrink what gets to their respective states from the federation account.
The loans were provided by the CBN at 9 percent interest rate, with a grace period of two years, while the federal ministry of finance helped in the disbursements, with documented approval by the presidency.
The minister of finance, budget and national planning, Zainab Ahmed, announced the planned deduction of the bailout funds, saying it would commence in the Federation Accounts Allocation Committee (FAAC) provision for states this September.
Ahmed spoke at a public consultative forum on the draft 2020-2022 Medium Term Expenditure Framework/Fiscal Strategy Paper (FSP) which held last Tuesday in Abuja.
“It was a loan which was advanced by the CBN and the repayment will be made to the same CBN.So, the recovery process for us is to deduct from the FAAC allocation to the states and remit same to the CBN.
“We want the states to stay on the path of fiscal sustainability, but it will not be a condition for the deduction,” Ahmed said.
The concern already being expressed in some states isn’t coming as a surprise. If anything, it brings to the fore once again the vulnerability of the states in the face of the expected implementation of the new national minimum wage of N30,000, signed into effect in April 2019.
In many of the states that benefited from the bailout funds, payment of workers’ salaries and pensions of retirees had been and still an issue. Kogi and Osun States are typical example.
Recent statistics from the Fiscal Responsibility Commission (FRC) showed that most of the Nigerian 36 states are in near collapsed state and living in a borrowed time due to huge debts.
According to FRC report, the states have a combined debt in excess of N2.39 trillion as at 2017, a 53.31 percent deficit. The FRC’s report had further revealed that by December 2017, the states spent about N359.32 billion or 17.12 percent of their combined statutory revenues to service debts. All except four- Anambra, Katsina, Sokoto and Yobe States had debts exceeding their revenues by 100 percent.
In its 2017 Annual States Viability Index, the Economic Confidential also rated 17 states in Nigeria as technical insolvent as their internally generated revenues (IGRs) were far below 10 percent of their receipts from the federation account.
All things being equal, the financial health of the states is bound to further plunge, as the Federal Government itself faces shrinking revenues and is seen battling to implement its programmes. If there is anything to expect from the current quagmire, it is that the luxury of bailing out the states going forward is being threatened.
Unfortunately for the states, the bailout funds would be deducted at source. As it is the practice, revenues (including from crude oil, company income tax and custom duties or tariffs are captured in a central pool known as federation account. And based on the sharing formula, the Federal Government takes 52 percent of this revenue, while states and local governments share the balance. In actual disbursement, the federal remits states’ share through the consolidated revenue fund popularly – Federal Accounts Allocation Committee (FAAC) allocation. Before this disbursement, each state’s financial obligations (debt servicing and all such associated payments) are deducted at source before the balance is remitted to the state as its revenue allocation.
This much has been said by Ahmed, minister of finance, budget and economic planning, ahead the commencement of deductions of the bailout fund.
“It was a loan which was advanced by the Central Bank of Nigeria (CBN) and the repayment will be made to the same CBN. So, the recovery process for us is to deduct from the FAAC allocation to the states and remit same to the CBN.
“We are going to start these remittances by the next FAAC,” Ahmed said.
The Nigerian Governors’ Forum (NGF) had early in the year insisted on a review of the sharing formula as a condition to implement the N30,000 minimum wage, arguing that the formula as it stands, unjustifiably gives the Federal Government undue advantage over the federating states.
There is an ongoing discourse around the reappraisal of the sharing formula to give the states some leverage. However, it is nothing concrete yet to suggest a review any time soon.
But are the states entirely helpless in terms of revenue generation to pay the new wage and adequately meet other obligations?
State governments and their appendix entities (local government) receive 85 percent of total consumption tax, popularly called value added tax (VAT), and are at liberty to determine how far-reaching their internally generated revenue (IGR) drives can go.
Perhaps, to show that the states are not helpless, President Muhammadu Buhari recently challenged them to work to upgrade their IGRs.
“Going forward, states must in the next four years find ways to increase internally generated revenues, improve VAT collection and increase agricultural output without disrupting business activities.
“I also want you to work with federal agencies and service providers in ensuring that broadband infrastructure is made available all over the country. Information and communication technology is future of work and must not allow ourselves to be left behind,” said Buhari to state governors during the inauguration of the National Economic Council (NEC) in Abuja.
Apart from a few of the states, including Lagos, Ogun and Rivers, most of the 36 states are dependent almost 100 percent on federal transfers to fund their budgets and programmes, as their IGR present a pathetic financial picture.
Notwithstanding this, however, organised labour has insisted the new wage must be paid once the ongoing negotiation on consequential adjustment of workers’ salaries becomes agreeable to all parties. The negotiation is between the Federation Government and the Joint National Public Service Negotiating Council (JNPSNC) representing organised labour.
While the Federal Government has proposed 9.5percent salary increase for employees on grade levels 07 to 14 and five percent for those on grade levels 15 to 17, labour is demanding 30 percent increase for officers on grade levels 07 to 14 and 25 percent increase for grade levels 15 to 17.
AyubaWabba, president of the Nigeria Labour Congress (NLC) said last week that the NLC would support any position taken by the JNPSN on the new national minimum wage.
AladeLawal, secretary general of the JNPSN, confirmed that negotiation would resume on September 16, 2019.
Kano, Zamfara, Kwara, Rivers, Edo, Kaduna rearing to go
Interestingly, some states, including Kano, Zamfara, Kwara, Rivers, Kogi and Edo have pledged to pay the new wage.
Governor Abdullahi Ganduje of Kano, has assured that his administration would give priority to the welfare of civil servants in the state.
“We are ready to pay N30,000 monthly salary, because the welfare of our workers is paramount to anything and we will always give it,” Ganduje said during this year’s May Day rally in Kano.
In Osun, Governor Gboyega Oyetola has said administration would wait for the guidelines on payment of the N30,000 minimum wage.
In Kwara, the state government said it was prepared for the payment of the new minimum wage. In Kogi, the state governor, Yahaya Bello, was said to have set up a committee to look into the modalities of making compliance easy, while in Niger, the government said it was disposed to paying the new minimum wage.
In Delta, the state governor, Ifeanyi Okowa has also given indication to pay, saying Delta would not be an outcast in the payment of the new minimum wage.
His counterpart in Rivers, Nyesom Wike, has also promised to comply with the provisions of the new minimum wage law while in Edo, Godwin Obaseki has expressed readiness to conform to the provisions of the new national minimum wage.
Beyond the pledges
However, beyond the seeming ‘political promises and pledges’, the ability of the states to pay is still dependent on their financial capacity, as many of the states still struggles with huge debts amid lean receipts from FAAC and IGRs.
Ayo Akinwunmi, head of research, FSDH Merchant bank said, with the new directive by FG to state governors the capacity for states to pay the new minimum wage is in doubt.A look into the books of state governments has shown that most states in Africa’s largest economy are failing to grow revenues internally but depend largely on monthly allocations from the Federal Government to meet up with their planned expenditure yet, they have agreed to take on an additional 64 percent increase in the minimum wage from N18, 000 to N30, 000.
Data compiled by BusinessDay show that the amount shared by the three levels of government (FAAC) declined by 2.61 percent in the first half of the year to N3.842 trillion from N3.946 trillion disbursed in the same period the previous year.
Analysts say with declining FAAC, state governors are in for a tough time in terms of meeting their financial obligation
“The situation of the new minimum wage coupled with the decline seen in FAAC allocation is going to put more stress on the finances of both the federal and state government particularly on the state governments because of the federal government capacity to borrow with treasury bills and bonds which states do not have the latitude to,” said Johnson Chukwu, MD/CEO Cowry Asset MGT LTD.
“More importantly this would make them unable to pay salaries and clear off their pension arrears,” Chukwu said.
Is N18, 000 a fair living wage?
The truth is, with the prices of goods and services growing at double digits and eating deep into consumers’ lean wallets, a minimum wage of N18, 000 is a far cry from what is required to provide for the basic need of life hence, the need for an upward review.
The last time the minimum wage was reviewed was in 2011 under Goodluck Jonathan administration, when it was increased by 140 percent from N7, 500 to N18000 again, no doubt there is every reason for the Nigerian Labour Congress (NLC) to agitate for an increase.
At an N18, 000 wage amount, which is equivalent to US$50/month using an exchange rate of N360/$, Nigerian workers are ranked among the most poorly paid in the world.
Currently, Africa’s biggest economy has one of the lowest minimum wage rates in Sub-Saharan Africa (SSA) and is only better than the wages earned by workers in countries in Africa that are recovering from crisis: Uganda (US$6/month), Malawi (US$49/month) and Burundi (US$7/month).
However, analysts said the burning issue in the minds of the majority of Nigerians is the Federal and State government’s ability/willingness to fully implement the new minimum wage given current fiscal realities.
“State governments depend too much on revenue allocation from the federation account and this is making them have low capacity to generate income internally,” noted Tajudeen Ibrahim, head of research at Lagos-based investment firm.
Ibrahim explained that state governments should pay close attention to developing tourism, entertainment and arts in their states as these are important sectors that attract investments.
Source: Businessdayng
