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The introduction of new subsidy palliative loans might result in a cumulative borrowing of 36 states from the Federal Government amounting to N1.34 trillion, as indicated by The PUNCH’s investigation.

This debt includes a N614 billion obligation under the Federal Government’s budget support facility in 2019, an additional N656 billion in 2021, and a fresh N69.12 billion in debt allocated for subsidy palliative measures this year.

It’s important to differentiate this debt from the states’ domestic debt of N5.48 trillion as of March 2023, along with an external debt of $4.4 billion as of December 31, 2022, as reported by the Debt Management Office.

According to The PUNCH’s findings, the 36 states collectively owed the Federal Government N614 billion under the budget support loan facility in 2019. The previous Minister of Finance, Budget, and National Planning, Zainab Ahmed, had shared during a National Economic Council briefing in August 2019 that the Federal Government had provided “over N614 billion to 35 States.”

She explained that this facility was intended to assist the states in managing the repayment of prior bailout facilities endorsed by the Federal Government. Repayments are expected to commence next year, marking the conclusion of the two-year grace period.

Nonetheless, just last week, the Federal Government introduced a palliative measure of N5 billion for each state within the federation, which also includes the Federal Capital Territory, with the intention of mitigating the repercussions brought about by the discontinuation of the petrol subsidy.

The aforementioned policy, resulting in significant and repetitive surges in fuel prices, has contributed to inflation in the cost of commodities and services. This, in turn, has exacerbated poverty levels for millions of Nigerians and further aggravated the nation’s socio-economic condition.

However, in a statement endorsed by the Director-General of the Nigeria Governors Forum, Asishana Okauru, the offer has been characterized as “voluntary.” States that opt not to participate are encouraged to reimburse the N2 billion already allocated to them.

The particulars of this arrangement are outlined in a memorandum to the governors. The disbursement of a total of N4,000,000,000.00 will be apportioned as follows: Loan (48 per cent) – N1,920,000,000.00; Federal Government Grant: (52 per cent) – N2,080,000,000.00; Beneficiary: each state government; Repayment period: 20 months.

The facility, encompassing a three-month moratorium, does not incur interest, although a monthly deduction of N120,000,000.00 will apply after the initial three months.

Diverging from the preceding facility in 2021, which carried a nine per cent interest rate, the current allocation, amounting to a total of N69.12 billion, is devoid of interest.

Nevertheless, state governments are anticipated to commence reimbursement by December, following the conclusion of the three-month grace period.

Chairman of the Nigeria Governors’ Forum and Governor of Kwara State, AbdulRahman AbdulRasaq, has verified the receipt of N2 billion from the Federal Government’s N5 billion disbursement.

In accordance with the arrangement, while states are set to acquire N4 billion in cash, an additional N1 billion will be supplied in the form of essential commodities—specifically, 40,000 bags of maize.

“We are currently awaiting the remaining N2 billion of the funds, in addition to N1 billion worth of maize (equivalent to 40,000 bags), which is being offered to each state from the national strategic reserve by the Central Bank of Nigeria.”

“However, it is pertinent to emphasize that 48 per cent (N1,920,000,000.00) of the N4 billion is structured as a non-interest loan, repayable over a 20-month duration through monthly installments of N120,000,000.00.”

“As a result, I have issued a directive for the immediate procurement of rice equivalent to the specified amount.”

Challenges Faced by States

Furthermore, it has come to our attention that the repayment of this loan has emerged as a significant concern in the interactions between the states and the Federal Government.

In July 2021, an agreement was reached between the Central Bank of Nigeria and state governors to initiate deductions from the budget support facility.

This course of action followed a previously arranged repayment schedule set for September 2019. However, the execution of this repayment scheme led to a dispute between the state governors and the central bank.

In May 2021, Godwin Emefiele, the suspended CBN Governor, urged states to initiate repayment, but the governors persisted in seeking a delay.

The Federal Government introduced the conditional facility for states through the Central Bank of Nigeria in 2017, aiming to alleviate the impact of shrinking resources and assist states in meeting their diverse obligations.

Upon the expiration of the initial two-year grace period, the deductions were suspended for an additional year to provide states with financial stabilization amidst the outbreak of the COVID-19 pandemic.

As of the time this account was being reported, The PUNCH could not ascertain whether any repayment actions had been taken by the states thus far.

However, it appears that no deductions were made, as the National Economic Council (NEC) stated in October 2022 that it would review the Central Bank of Nigeria’s proposal to initiate deductions from the state governments’ portions of the monthly federal allocations. These deductions are intended to facilitate repayment of the Federal Government’s budget support facility.

A press release from Laolu Akande, the former spokesperson for the former Vice-President, Yemi Osinbajo, explained that the decision to reassess the repayment strategy was influenced by the prevailing challenges encountered by state governments in meeting their financial obligations.

Increased FAAC Allocations

Further information reveals that there was a rise of N540 billion in the total amount apportioned to the Federal Government, states, and Local Government Areas following the cessation of the fuel subsidy.

This insight is derived from an analysis of communiqués issued by the Federation Account Allocation Committee for the months spanning January to July in both 2022 and 2023.

In 2022, a cumulative total of N4.96 trillion was distributed throughout the initial seven months of the year.

Conversely, by 2023, the distribution escalated to N5.5 trillion for the corresponding period.

Addressing the states’ substantial debt load, Tajudeen Ibrahim, the Director of Research & Strategy at Chapel Hill Denham, remarked, “The debt amount of N5 billion per state is relatively modest. Hence, it’s improbable to exert a significantly adverse impact on their financial conditions. In any case, I believe the states are currently in a better position in terms of revenue allocation from the Federal Account Allocation Committee. Presently, the amounts they receive seem larger compared to what Nigeria was generating earlier. Therefore, the N5 billion per state seems relatively small, and the influence on their financial records should remain manageable.”

Another perspective came from Jonathan Aremu, a Professor of Economics at Covenant University, who explained that the palliative loans granted to the governors might ultimately be employed to settle existing state loans. He raised concerns that some governors might opt to utilize the funds for requesting foreign exchange, potentially exacerbating the foreign exchange crisis in the nation.

He elaborated, “Depending on the urgency, some may choose to use the money to repay loans rather than allocating it as palliatives. If the loan is causing them more concern than the need for palliatives, they might divert it.”

He also expressed apprehension that infusing funds into the economy without corresponding increases in production could exacerbate the ongoing inflation crisis in the country.

“Regardless of whether you do it subtly or overtly, when you inject money into the economy without concurrent growth in the production of goods and services, the market’s response will be the same. It will trigger inflation,” he cautioned.

Gombe, Katsina palliatives

Meanwhile, Governor Muhammadu Yahaya of Gombe State has disclosed that the state has received only N2 billion out of the Federal Government’s N5 billion palliatives fund. He shared this information during the culminating event of the palliatives distribution held at the Gombe Emir’s palace grounds on Wednesday. Beneficiaries were given 5kg bags of rice, fertilizers, pesticides, and cartons of either macaroni or spaghetti.

Governor Yahaya stated, “While some might be hopeful that the N5 billion the Federal Government is allocating to states will lead to a substantial change, it’s important to note that Gombe State has only received N2 billion. Surprisingly, we already have N2 billion worth of rice in our account. I hold reservations about whether the Federal Government, via the CBN or any other agency, possesses such substantial reserves. As a case in point, the grain silos in Gombe, once owned by the Federal Ministry of Agriculture, have been leased to a private company, implying that the strategic grain reserves of 25,000 tons are no longer under government control but in private ownership.”

Similarly, the Katsina State Government has clarified that it obtained N2 billion from the Federal Government for procuring grains as palliatives for the state’s residents. The State’s Commissioner for Information and Culture, Bala Zango, clarified this during a press briefing in Katsina on Wednesday. He explained that Governor Dikko Radda directed all 34 Local Government Areas to acquire and distribute grains to people in their respective regions.

Zango further elucidated, “Under the leadership of Mallam Dikko Umaru Radda, the Katsina State Government has already utilized the received N2 billion to purchase 40,000 bags of rice intended for distribution to every polling unit within the state.”

In a related development, the Kano State Government has called on the Federal Government to review its palliative allocation formula with a view to giving more to the state.

A statement by Sanusi Tofa, the Chief Press Secretary to Governor Abba Yusuf, said the call was necessary because  “Kano has the highest population in the country.’’

In Edo State, Governor Godwin Obaseki has said he is shocked by the Federal Government’s failure to plan and effectively respond to the fallout of the subsidy removal.

Obaseki, who spoke with journalists in Benin City, said he had raised the alarm following the mismanagement of the nation’s economy, noting that the country’s situation was taking a turn for the worse as a result of the bad policies by the government at the centre.

The governor expressed, “I’ve consistently cautioned, reiterating my concerns during this year’s May Day. I informed the Nigerian public that we’ve reached a definitive juncture, signifying the termination of the former economic paradigm in Nigeria. It’s crucial for us to formulate a fresh economic framework and desist from deceiving ourselves as a nation.”

“Now that the subsidy has been removed and the exchange rate is being aligned, we’re witnessing the nearing of the era of easily available funds. Regrettably, the most susceptible and marginalized segments of our society will bear a significant brunt of these policy consequences.”

Obaseki conveyed his dismay at the lack of strategies put forth by the Tinubu administration to address the repercussions stemming from the elimination of subsidies.

“I am genuinely taken aback and concerned by the current circumstances where the government seems to be devoid of a plan or remedy to manage the consequences of the policy directives introduced by their administration.”

“Given the mismanagement of our national economy, we are now grappling with an inflation rate ranging between 20 and 25 percent. This implies that the populace will undergo heightened hardship, especially those who are frail and vulnerable within the society. This situation is particularly unfavorable for our pensioners as the compensation they receive will offer them only limited relief,” he observed.