Nigeria is treating with kid gloves an emerging threat-possibility of more than two third of the 36 states going bankrupt,failing to meet debt obligations alongside inability to pay salaries and provide social services.It is daily becoming a possibility.
Minister of Finance ,Kemi Adeosun had acted commendably by innovating the 20 points Fiscal Sustainanbility Plan .This serves as conditionalities for states to meet before eligibility for loans.The plan has been applauded as fundamental response to fiscal crisis plaguing the states.
Upon closer review of the situation,it appears the plan is a successful antidote to stopping further worsening of the fiscal crisis across sub-national structures.But it has not actually address the critical question of fiscal trap-the existing choking debt which worsens by the day especially with accumulation of more debts.
Apparently ,the Federal Government lacks the capacity to write off the states’ debts.Many will count it unreasonable and unsustainable .That is of course the truth considering the fact that greed and fraud at the states level were actually responsible for the financial paralysis.
However the greatest threat to survival of democracy today is not the power play among the elites; rather it is the gradual collapse of state governments across the federation. The state capitals are mostly cash strapped and governors stay more in Abuja than their respective states.
The collapse of local government structure was famously responsible for the storming of state capitals by citizens from local government headquarters. The onset of paralysis at state level may mean the mobbing of Abuja by hard pressed citizens from the states. It is happening already.
Unconfirmed data showed that an average 100, 000 to 200, 000 Nigerians move to Abuja and its suburb on monthly basis. The city centre is getting choked up. For those in Abuja, just take a glance at the desperate league of our citizens at AYA ,Kubwa, Gwagwalada, Area 1 among others. The states are collapsing.
As the situation worsens at the state level, the Federal Government is also handicapped .Borrowing to pay salaries; the fiscal situation of Abuja is troubling. A fiscally challenged central government is incapable of bailing out debt ridden state governments. Even if more loans are extended, such gestures may only guarantee deepening of the financial mess across the states.
Unlike the United States of America, Nigeria as yet has no law allowing a state to file for bankruptcy .Several municipal and states governments in the United States have had to declare bankruptcy when they cannot service debt or meet service obligations to the citizens. The latest is Puerto Rico.
Once a state declares bankruptcy, intervention to manage the finances of the state and relate with creditors are taken up by a federal agents under the law. The law helps to tackle the crisis, reform state finances and prevent open collapse of such tiers of government.
Nigeria has no such law.
Abuja is thus in dilemma as to what to do. First calling on states to increase internally generated revenues is like prescribing panadol for a patient in coma. Secondly ,can we put up a bankruptcy law to attend to emergencies across the states? That will not be a bad idea? Thirdly, can we have a round table between states and creditors to renegotiate the loans? Can creditors take part of the blame and accept elements of bad debts?
We are getting to a breaking point. As things stand, loans or no loans, most state governments may virtually collapse before the end of the year. The evidence are popping up daily even if we are denying it.
If I may ask, what happens if states default on loan repayment? That will be a threat to the banking and finance sector. It will bring stability of the nation’s financial system into jeopardy.
But already the disruption is here. Before long, paying the loans will become impossible. Citizens of paralysed states will revolt. The uprising will not just be against their governors but against the money lenders, the banks.
Questions may arise as to why the banks so fraudulently collaborated with governors to borrow so much. Are the banks not aware of the fragility of states finances ?Were due diligence correctly conducted ? Were the banks very sincere in granting so many questionable loans? Were the boards of directors aware of implications of granting political loans shrouded under development projects?
Events of the last one year had shown that many banks are culpable in this mess. When we crucify the governors, we should not shield or spare their accomplices in the banking hall. And there must be a price to pay.
If you approve and disburse questionable loans, you open the gates for bad debts especially when the beneficiaries of the loans, the state governments, are fiscally trapped and paralysed.
As much as the financial sector must be protected, all culpable sides must bear the brunt. The banks are guilty as much as the governors.
. Courtesy: Sahel Standard
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