In a matter of weeks, distraught civil servants at the states level where unpaid salaries had piled up would begin to freshen up, courtesy of a three-pronged bailout package orchestrated by the Presidency. In keeping to his declaration to address issue of salary arrears on assumption of power, President Muhammadu Buhair, two weeks ago, rallied the Central Bank of Nigeria (CBN) and other stakeholders to achieve his pledge. Going by the benevolence, the troubled states and local governments are expected to start the execution of developmental projects that would be beneficial to their citizens as part of their campaign programmes. No fewer than 10 states, including Osun, Rivers, Oyo, Ekiti, Kwara, Kogi, Ondo, Plateau, Benue and Bauchi, among others, had found it difficult to meet salary obligations to their civil servants. After holding several sessions with the governors, President Muhammadu Buhari decided to deal with the issue of staff salaries, a predominantly state affairs, by approving N713.7 billion bailout as part of a threepronged relief package that will end the workers’ plight.
Life line
Contained in the package, which has generated diverse opinions, are N413.7 billion special intervention funds and the balance of about N250 billion to N300 billion, which is a soft loan to states. The N413.7 billion was sourced from the recent LNG proceeds and the remaining N300 billion is to be provided by a Central Bank of Nigeria (CBN)-packaged special intervention fund, while the Debt Management Office (DMO) is expected to assist states to restructure their over N660 billion commercial loans. The CBN’s intervention has elicited diverse reactions both from experts and the public. The CBN enabling Act of 1958, including subsequent amendments, conferred on the apex bank unequalled status of banker to government and bankers’ bank.
CBN’s role
The mandate of CBN is derived from the 1958 Act of Parliament, as amended in 1991, 1993,1997,1998,1999 and 2007. In specific term, the Act recognises CBN as Banker to government with a core mandate of providing economic and financial advice to the Federal Government. CBN’s direct financial intervention in form of soft loan package of between N250 billion to N300 billion to be advanced to cash-strapped states has compelled analyst and financial experts to examine whether the apex bank acted in the right direction, and what is to be done to safeguard future occurrence and mismanagement of public resources by states.
Speaking with New Telegraph on telephone, an Economist and a former Deputy Governor of CBN, Dr. Obadiah Mailafia, said that CBN did a good thing that is within its mandate. He, however, advised the apex bank to avoid crowding out conventional banks entrusted with the responsibility. “The N250 billion or more to be provided by CBN to bail out the states is a good thing and I will say it is a welcome development. However, the CBN can intervene in this circumstance but it should avoid a crowding out effect. The retail business, going by the provision in the Act, is not that of CBN, but once in a while, in a situation of credit crunch as currently being experienced, the apex bank can lend, but it is the business of commercial banks,” said Mailafia. He warned CBN to be mindful of moral hazard, saying that no lesson would be learnt if states engaged in financial profligacy because they are sure of getting financial bailout without going through pains to stop them repeating the same act in future. “While the CBN acted well, it should be done with some conditions to teach states lesson,” he added. Mailafia suggested that the CBN and DMO collaborate by restructuring the expenditure pattern of states to avoid a repeat of the huge debt scenario.
He noted: “What is essential is to stop states from incurring unnecessary debts. CBN should take seriously its advisory role, not just verbal advisory; CBN and DMO should monitor public expenditure by states, especially those that will get the bailout fund. CBN should ensure that they are kept on solid foundation to avoid a re-occurrence of future borrowing. We need to design special monitoring mechanism to track states’ expenditure.” Also, an Economists and Chartered Accountant, Tope Fasua, told New Telegraph that the CBN acted in line with its mandate. He, however, supported the position that the loan must go with conditions. According to him, given the financial recklessness by some state governors, which put their states in position of financial insolvency, the CBN must attach stringent conditions to the bailout. Again, the Lead Director of Centre for Social Justice, Eze Onyekpere, observed that while CBN has acted within its mandate as banker to the Federal Government, it should be done with conditions attached.
The LDC boss said that the CBN ought to have attached conditions to be fulfilled by states before raising bailout fund. “Moreover, Section 41 of Fiscal Responsibility Act applicable to all States of the Federation (vide items 7 and 50 of the Exclusive Legislative List) prohibits borrowing for recurrent expenditure and payment of salaries. The minimum that is expected is that strict conditions of fiscal reform should be attached to accessing the loan,” Onyekpere said. He contended that many states had failed, neglected and refused to pass the Fiscal Responsibility and Public Procurement laws, adding that where they have been passed, most states have refused to make them operational. “Allowing such states to access the funds will only strengthen existing perverse incentives, which encourage fiscal rascality,” he said.
Conclusion
From the foregoing, it is believed that although CBN’s role in the bailout remains a commendable gesture, there are, however, fears that the bailout could be taken for granted and possibly misappropriated if prudent rules are not attached to the loans.
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