State Governments: Another Cycle of Non-Payment of Salaries to Begin Soon

Thursday, April 09,2020 / 10:52 AM / By CSL Research / Header ImageCredit: Shutterstock

There were news reports yesterday that the President hadapproved the suspension of the payment of interest on debts owed by stategovernments. According to the Minister of Finance, Budget and NationalPlanning, Zainab Ahmed, this was part of measures to reduce the debt burden onstate governments. The moratorium, according to the minister, would be grantedon the Federal Government and CBN-funded loans in order to create fiscal spacefor the states, given the projected shortfalls in FAAC allocations.

Recently, the Adamawa State Governor was quoted in newspaper reports saying his state will be unable to pay the new minimum wage inMarch due to the Covid-19 Pandemic. The truth is that as long as stategovernments do not make desperate efforts to develop their internal revenuegenerating capacity, the states in the country would continue to operate aninefficient rent collection system where they rely solely on FAAC allocation tomeet basic needs such as paying workers salaries.

Most states depend primarily on monthly receipts from theFederal Accounts Allocation Committee (FAAC) to fund their budgets. Thoughthere are a few exceptions such as Lagos and Rivers state and many more havemade some efforts to increase Internally Generated Revenue (IGR).Unfortunately, monthly FAAC disbursements, which mainly originate from oilreceipts to the Federal Government are an unreliable source of income given itsdependence on oil prices. In December 2014, six months after oil prices beganto decline (oil prices had fallen by about 46.5% at the time) it was reportedthat 11 state governments were unable to fund workersâ€™ salaries and many neededbail outs to continue to fund their budgets.

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