There is a common saying in the United States that it takes two or three salary cycles of nonpayment of your mortgage for you to lose your house. The situation in Nigeria has been much worse for government workers in the last one year: The federal and state governments owe for several months one or more of workers’ salaries, pensions, earned allowances, and other remuneration. The multiplier effects of the nonpayment of these emoluments have reverberated across the economy.
I decided to investigate the case of Osun State, given the lopsided media focus on the state and its governor, Rauf Aregbesola. Accordingly, I spent three days last week with the governor and his commissioner for finance. I interviewed both of them over two days and painstakingly went through papers and figures. The goal was to determine why Osun workers did not get their salaries as and when due; at what point the problem began; and what the state government has done to alleviate the problem.
Osun’s salary woes started in 2012, when the state’s wage bill began to rise as a result of the increase in minimum wage. When the increase was applied to junior workers only, the state’s monthly wage bill doubled from N1.4bn to N2.7bn. By July 2013, after the increase in minimum wage was applied across the board and relativity factored in, the monthly wage bill had hit N4bn. By this time, the state’s wage bill was already running ahead of statutory allocations.
Here’s a five-year summary (in billions of naira) of net statutory allocations versus emoluments: 2010 (two months only), 4.2 vs 3.6; 2011, 29.9 vs 25.8; 2012, 28.4 vs 31.6; 2013, 26.4 vs 36.9; 2014, 19.3 vs 22.4. This table shows that deficits in the wage bill began to accrue in 2012 and peaked at N10.4bn in 2013. Thus, between November 2010 and December 2014, Osun got a total statutory allocation of N108.3bn, but expended N120.4bn on emoluments. The state was left with a total deficit of nearly N12bn.
But this is only part of the story as the above summary only covers expenditure on salaries and other emoluments. During the five-year period under review, the state’s total recurrent expenditure was N206bn, while the statutory allocation only stood at N108.3bn.
How then was the governor still able to run the government and engage in major capital and social programmes? There were two additional sources of revenue. First, there were other accruals from Abuja, which raised the allocation profile from N108.3bn to about N176bn. Second, the state’s Internally Generated Revenue during the period stood at about N28bn. Thus, between 2010 and 2014, the state’s earnings from all sources stood at N204bn, leaving a deficit of N2bn on recurrent expenditure. This means that all the earnings could not even carry the state’s recurrent expenditure.
The question still remains as to how the governor still managed to prosecute his social programmes and capital projects. First, he took loans totalling N40bn. Second, he reached an agreement on derivative or flexible financing with contractors. This means that only 50 per cent of project cost would be paid on completion, while the remaining 50 per cent would be paid at agreed intervals over an agreed period of time. Such an agreement was anchored on a promissory note by the government with which the contractor could approach a bank for a loan. This arrangement allowed the state to implement projects worth more than twice the amount of cash in hand.
This is not the place to review those social programmes and capital projects. Suffice it to say that my earlier reviews of them on this column revealed a level of excellence, social penetration, and acceptability that far exceeded the amount expended. A good measure of this claim was Aregbesola’s resounding re-election victory even when the state’s salary troubles had already set in.
The issue at hand is the salary arrears. As a result of the shortfalls in accrued revenue summarised above, the outstanding salaries and pensions for 2014 stood at N13.1bn, while accumulated salary arrears in 2015 is in excess of N16bn.
The outlook for the future is dire, going by the state’s declining federal allocation. Just look at the figures for the first four months of 2015: January N1.25; February N1.12; March N624 million; and April N466 million! Notice the precipitous fall during the two election months. If only the public knew about this, some would have asked what business former President Goodluck Jonathan had in running for re-election, given his abysmal failure in managing the nation’s oil resources.
Two reasons were given for the drop in statutory allocation to the states, namely, (1) oil theft of over 400,000 barrels of crude oil per day and (2) the fall in oil prices from over $100 to about $50 per barrel. While the fall in oil prices might have been beyond Jonathan’s control, it remains unclear why no single oil thief was caught or apprehended beyond a few pipeline vandals.
Incidentally, when Aregbesola cried out in 2013 against the drastic drop in federal allocations to the states, he was vilified by the press. Some chided him for going cap in hand to Abuja, begging for federal largesse. What such critics fail to understand is that the money being shared is our national patrimony for which a sharing formula is enshrined in the constitution. Governors or their appointed delegates go to Abuja every month for the sharing only because Abuja is the federal capital.
The critical question for now is how do Osun workers and pensioners get paid? The collective appeal by the 36 governors to the Federal Government has yielded some fruit. First, the sum of N760bn that accrued to the federation account since President Muhammadu Buhari came to power would be shared. The funds came from two sources, namely, N400bn of tax obligations from the Bonny LNG and Shell Producing Company and N360bn of the internally generated income by the Federal Inland Revenue Service.
Second, the Central Bank of Nigeria would make available a loan package of between N250bn and 300bn for distressed states to access, after fulfilling necessary requirements. Third, the CBN would intercede with commercial banks and the Debt Management Office to restructure the tenure of over N600bn outstanding short term loans of state governments.
Three things are clear from the foregoing. First, the funds being made available to the states are not a bailout. Second, the funds are being shared by defaulting and non-defaulting states alike. Third, workers should not expect that these funds would be sufficient in paying all their salary arrears. For example, the amount accruing to Osun from the N760bn is only N2.25bn, which is barely enough to carry a month’s wage bill.
Yet, the government has managed to defray salary arrears for three months so far and is preparing to pay for an additional month, thus bringing up its payments to February 2015. As one of the 10 most distressed states, Osun may soon have to tap into the loan package. This must be approached very carefully. It will be foolhardy to embark on yet another loan until the outlook on federal allocations improves.
This puts the burden on federal and state governments to begin earnestly on boosting their IGR and diversifying the economy. There is also the need to prune the government’s workforce by attrition due to resignation or retirement. Fortunately, Aregbesola has been very prudent with appointments over the years. Instead, he established a broad spectrum of social programmes that allows the government to reach more citizens than appointments of a few could afford.
Source: punch
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