By Magnus Onyibe

AS it so often happens, the best hope for answers to thorny issues is by relying on history. To that effect, I would like to turn to the Greece financial quagmire, her negotiation for a bailout by the eurozone authorities which has been very intense, if not controversial,and incidentally has a parallel to the recent situation where some financially insolvent states in Nigeria have requested for and received approval by president Buhari for a similar financial bailout.

The Greece experience, to some extent differs from the situation in Nigeria because, while it’s the states that are requesting for bailout from the the Federal Government from the financial mess in which they are embroiled and reflected in their inability to pay workers salaries, (up to 16 months backlog in some states) it is unlike the Greeks that are seeking bailout to avoid being declared bankrupt by the World Bank and Eurozone authority which is a regional supra government of sorts.

Technically, both debt situations are similar because they are cases of insolvency to be resolved through fresh injection of cash into the economy. Greece banks have now been shut down with only a window of equivalent of maximum $60 per day allowable for withdrawal via ATM just as approximately 26 Nigerian states which have been unable to meet salary obligations to civil and public servants require fresh funds. For Greece to remain part of the 19 nations Eurozone, there are basic economic standards that it must exhibit and conform with. One of the requirements entails yielding of sovereignty over how she manages her financial affairs to the zone’s authorities comprising European Commission Bank, ECB and European Comission Group, etc.

Greece, which is the cradle of democracy, if you recall the historical antecedents of Athens, the capital of Greece in the evolution of democracy and centre of civilization,has twice sought for bailouts in the past hence it’s having a tough time convincing the major creditors led by Germany and France for a third bailout. With a whooping debt profile of some $96 billion dollars, Greece needs to first of all, cough out between $7 to $10 billion to the ECB to get her economy cranking again. To qualify for the loan, Eurozone leaders are demanding that Greece meets up with some severe conditions which include far reaching reforms in the economy such as privatization of public assets, Value Added Tax, VAT and Pension tax amongst others to be enacted into law by Greece parliament before drawing down on the funds to be escrowed and co-managed by the ECB.

Austerity measures

Compliance with the reforms recommended by Eurozone authorities entails application of austerity measures which most Greeks loathe and which government has been flouting hence the economy has further sunk into deeper financial debt burden after two previous bailouts in the past five years. If the parties had not got to a yes agreement, the alternative would have been to get Greece forced out of eurozone for possible re-entry only after the next five years when that country might have got her financial act together. Perhaps the tough stance by the ECB and the European Commission is derived from having been disappointed by two previous failures by Greece to turn her economy around after bailouts but it is a lesson that Nigerian authorities must learn with respect to the huge sum ($2.1b from NLNG and Shell plus N250-300bn from CBN) that President Muhamadu Buhari has recently approved for disbursement to the debt laden states without the necessary tough conditionality similar to the type imposed on Greece by the Eurozone authorities.

Of course I’m not by any means suggesting that the Federal Government bailout should be a poisoned chalice or that state governors should be put in a financial strait jacket but I’m of the view that the benefiting state govts should be put under watch by professional fund managers as guaranty for accountability and recoupment of the facility. Although the 26 or more Nigerian states may not be third time bailout seekers like Greece, but must we wait for them to default three times like Greece before strict conditions are applied to ensure that they don’t fall back into similar debt trap that Greece is entangled with after they receive the first bailout? While not assailing the decision to bailout the states as the initiative is bound to reflate the already sluggish economy, especially at the micro level, some of us are of the view that President Buhari might have extended the hand of support to the ailing states without the required strict repayment plans (especially with respect to the N250-300 CBN loan) tough enough to discourage the governor’s,like the mythical Oliver Twist, from coming back for more.

Ideally, in the absence of a cabinet or an economic council ,a simple approach would have been for mr president to invite banks to negotiate the bailout with the states on terms similar to what the International Monetary Fund, IMF or ECB would demand.

After coming to an agreement to grant the soft loan the federal govt could have provided the guaranty to the banks by depositing the $2.1 billion NLNG and Shell tax revenue   plus CBN #250-300b with the banks as guaranty.

The Debt Management Office, DMO   already   mandated to renegotiate the estimated N660 billion naira states debt to Deposit Money Banks, DMBs and CBN directed to raise another N250-300 billon soft loans to the states could have been joined by any of the reputable international financial consulting firms like Pricewaterhouse Coopers, Ernst&Young,KPMG and other local Nigerian financial outfits to hammer out a sustainable debt repayment framework that would help the states pay backlog of salaries and at the same time,restart growth.

Repayment framework

Amongst other benefits, in the course of negotiating the bailout,the areas of profligacy by the bankrupt states would have been identified with a view to plugging the suspected   gapping holes through which finances have been leaking.

As it now stands,that opportunity might have slipped as Nigerians and policy makers may not have the opportunity of highlighting and proffering solutions to the apparent squandering of public funds by some of those entrusted with its husbandry, if the fraud allegations being leveled against some ex governors currently being arraigned by anti graft agency-EFCC   is anything to go by.

Understandably, most governors are not trained economists or accountants so the tendency to be indisciplined or imprudent in funds management is high and it is not helped by the pressure to implement the lofty programs and policies promised during electioneering campaigns. On a brighter note, it is however encouraging   and commendable that in some instances,what has led to the debt trap in some states is cost over run spurred by the desire to roll out more infrastructure by some governors .The foregoing assertion is derived to the fact that to a large extent ,it is aggressive and frantic efforts by governors to implement visible projects that would benefit the populace in order to generate votes in order to guaranty their re-election to office (as opposed to the previous penchant for frittering away the state resources with the plan to bribe electoral bodies and tribunals for re-election) that is now the prime motivator for the massive deployment of financial resources that has put some states in financial dire straits.

Financial dire straits

This is in light of the belief that it has become impracticable to rig elections, (with the current improvements in voters awareness and voting methods) and, therefore, much easier to provide the so called dividends of democracy and get legitimately rewarded by the electorate with their votes.

As a testimony, in some states, modern school buildings, laboratories ,hospitals,dual carriage roads and sometimes over head bridges as well as futuristic stadiums are springing up and standing as visible evidence of the collective Standing Payment Orders, SPOs with the banks, totaling about (#660b) that they have more or less tied their monthly federal allocations used aa collateral for   the borrowed funds.

By doling out bailout money in excess of four hundred (N400b) billion naira so fast and without being subjected to stringent financial scrutiny, the federal government might have also lost the opportunity of using the debt owed by states to civil and public servants as bargaining chips in negotiating with Nigeria Labour Congress, NLC, in the event that it chooses to end the fuel subsidy and possibly sale of public refineries.

Undeniably, it is the corruption in subsidy application that has exerted the most excruciating and painful drain on public funds that some analyst estimates to be in excess of $3 billion annually, however NLC would typically resist any attempt to remove fuel subsidy or sell off the refineries as they did in 2010 when late president Umaru Yar’adua first removed subsidy and was forced to increase minimum wage which ballooned national wage bills.

Similarly, in 2012 , former President Goodluck Jonathan was compelled to roll back most of the fuel pump price increase which he had imposed in January following labour strike and national protest led by civil society organizations and supported by the APC which was the opposition party at that time.

If the financial bailout initiative is allowed to go through the usual exacting and prudent financial process of granting loans, federal govt might use it (payment of outstanding civil/ public servants salaries) as a bargaining chip in the horse trading with the NLC because for any negotiation to be satisfactory, both parties must give up and gain something and the agreement to pay outstanding workers salaries in the affected states would have met that criteria.

However, if the backlog of salaries are paid off before the federal government decides to engage in negotiation for removal of subsidy and sale of oil refineries, NLC will seek a recompense like another salary increase for workers which in the light of the current oversized recurrent expenditure in the national budget at 70% versus 30% skewed in favor of overhead charges in not feasible. So l’m scratching my head to phantom what the federal government would be offering NLC apart from the promise that the funds saved or recovered would from oil subsidy be geared towards provision of social services to ameliorate the associated subsidy removal consequences of higher cost of transportation,expensive food,prohibitive house rents   etc.

That would be a sort of dejavu for me as the old Petroleum Trust Fund, PTF during the Sanni Abacha rule of which president Buhari was chairman or Sure-P of the Jonathan era , Christopher Kolade would simply be re-enacted.

The question would then be, how efficacious were the social services rendered by the aforementioned task forces mischievously tagged quasi/parallel govt compared to when the services are rendered through conventional platforms like the ministries and departments?

On an optimistic note,the Central Bank of Nigeria, CBN has already embarked on capital control by denying access to the scarce foreign exchange to the importers of tooth pick and such inanities that could be produced locally which has been parodied by the Economist magazine of the UK. As CBN governor, Godwin Emefiele recently reported(maybe to the consternation of the editors at Economist magazine), Nigeria’s foreign reserve has grown from $29 to over $31 billion perhaps owing to the introduction of that capital control measure.

My concern and worry are that without the states being compelled to drastically cut cost of governance such as reduction in the unwieldy number of political aids,curtailing of jumbo emoluments to legislators,unbridled acquisition of vehicles annually,wanton hiring of private jets ( which put unnecessary pressure on scarce FX),reduction of unproductive overseas trips and other areas of economic leakages, Nigerian state governors, may soon return (Greece style) cap in hand to abuja for another financial bailout.

This is fueling the fear that the bailout of financially ailing states without strict recovery terms entrenched in curbing of the gluttony of public funds may not be sustainable as it is unlikely that the NLNG and Shell $2.1b tax income which were principally applied in the bailout, would return such hefty dividends again in the nearest future. More so because the price of oil/gas may not bounce back from the current $50.00 region to all time high of $140.00 in the boom days especially as oil rich Iran is about to be unshackled from global sanctions that barred that country from trading her oil internationally.

Nevertheless, it is never too late to make amends to the seeming egregious mistake of offering to rescue states without strict conditions. To this end, a ‘bad bank’   with a focus on states, fashioned after Asset Management Company of Nigeria,AMCON, the Special Purpose Vehicle, SPV launched to save Nigerian depositors from the ugly fallouts of distressed banks a few years ago,could be replicated with the DMO and CBN already mandated, as the drivers of the initiative.   Independent financial firms and experts earlier listed could also be invited to join in setting up a robust platform that would help restructure and reform financial expenditures in states with the aim of steering governors towards prioritization of development as the main focus of governance. For instance,the Greece bailout makes it mandatory for the ECB to co-Manage the bailout funds with the country to ensure compliance. As most analysts have argued, availing   state governors of public funds outside of the state’s legitimate monthly allocation from federation account must be backed with a robust restraining mechanism to ensure prudent deployment of the funds,otherwise the injection of more precious public funds would amount to another cash bonanza at governors beck and call and deployable for their whims and caprices and in tune with their epicurean tastes.

As most Nigerians are aware,CBN policy of advancing two (2) billion naira to some state govt that was expected to contribute counterpart funding of fifty percent (50%)half of CBN funds as soft loans was never deployed for the purpose of supporting small and medium scale enterprises ,that were targeted but used for political patronage or outrightly converted   by some governors to their personal use.   In the light of the above, the proposed CBN packaged #250-300b to rescue states from debt burden may go the same way if iron clad framework to manage the funds is not instituted hence the recommendation of the AMCON type safeguard.

Regrettably, in the absence of such arrangement,l dare to wager that, with international crude oil price continuing to remain bearish rather than bullish,considering the imminent lifting of the UN trade sanctions against Iran with huge oil reserves,it would be a question of how soon state governors would return to Aso Rock again on bended knees to hustle president Buhari for another bailout owing to unsavory outcomes with workers at the receiving end owing to another financial indiscipline and delinquency by governors.

Onyibe, a former commissioner in Delta State, development strategist, futurologist and alumnus of Fletcher School of Law and Diplomacy wrote from Abuja.



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