By CHARLES KUMOLU

The announcement of a bailout package for Nigeria’s 36 states that could no longer meet their statutory financial obligations, by President Mohammadu Buhari was such a relief to the insolvent states.

However, the issue of internal debts owed to commercial banks, posed a challenge to the prospects of utilizing the funds maximally. Hence, the palpable fears across the country that the N660bn  debt could undermine the rationale for the  N804.7bn package.

In that light, the President was apt in approving the proposal by  the Debt Management Office (DMO) to restructure  the debt, so as to  extend the life span of such loans while reducing their debt-servicing expenditures.

Debt-servicing expenditures

Essentially, this implies that the states would be left with enough resources, which otherwise would have been removed from their allocations by the banks.

As a result of that, the states now have financial breathing space to carry out their activities in the face of the financial crisis.

An attestation to the benefits of the development was recently disclosed by Delta State governor, Dr. Ifeanyi Okowa, who explained that in a bid to cushion the effects of the financial crunch, the DMO restructured its debts, particularly debt owed to commercial banks with strangulating interest conditionality.

Three-pronged relief package

Aside debt restructuring, the bailout came  in a three-pronged relief package to end the plight of workers in the cash strapped states.

Accordingly, the package involves:  The sharing of about $2.1billion (N413.7billion) in fresh allocation between the states and the federal government. The money is sourced from recent LNG proceeds to the federation account, and its release okayed by the President.

There is also a Central Bank-packaged special intervention fund that will offer financial aid to the states, ranging from N250bIllion to N300billion. This would be a soft loan available to states to access for the purpose of paying backlog of salaries.

Thirdly, a debt relief programme is proposed by the Debt Management Office, DMO, which will help states restructure their commercial loans, and extend the life span of such loans while reducing their debt-servicing expenditures.

Road to the bailout

Findings revealed that the road to the bailout was actually marshalled by the DMO through  a proactive strategy proposal to the President.

The DMO had envisaged that by the reduction and extension of the debt servicing obligations, the states will not only receive a breather but also have more funds to attend to urgent needs.

Elated by the development, industry operators have not ceased from commending the President for using the DMO to create financial stability across the states.

Managing Director, Asemota Securities and Loans, Mr. Sunny Iyobosa said: It is gratifying to know that President Buhari’s approval and directive of the involvement of the DMO was sequel to a proactive strategy proposal by the agency. It spoke well about the current administration. At the time the President drew up this assistance programme, most states were on the verge of bankruptcy with salaries and other financial obligations to their creditors outstanding.’’

On his part,  a financial analyst, Mr. Samuel Obafemi, said: “I think the President is on track. The first issue to tackle is the current problem of bankruptcy of the states. Let that be resolved so that there is operational progress across the nation. Then the DMO can enforce refund via a feasible cash-in, cash-back system which makes the states know the bail out isn’t a free gift. I think this approach is ingenious and responsible.

Ratification of debts

“The DMO is empowered by law to determine the ratification of debts and its nature, so I am certain they have the constitutional power to do same because Mr President is able to enforce discipline throughout this exercise. In the event of implementation failure, the state Governors should be held responsible.

“In  government, one thing is clear, whoever is incompetent will be replaced for results to manifest. President Buhari has preached competence and discipline, so he has got a huge passion to show the way it should be done. DMO is leading the pack.”

Debt recovery and loan management

For the DMO to be better positioned for the task ahead in the country’s struggling economy,  Obafemi suggested thus: “DMO should learn about debt recovery and loan management from the private sector. This is even easier if a private sector risk management expert can be recruited into the DMO.

Also commenting, Engineer Folaranmi Johnson of Intelisys Nigeria Limited, said the DMO should not be limited to data collection and management  of debt portfolios alone, but should be empowered to create a department that will ensure a fiscal policy and implementation of the loans to ensure that money collected does not go down the drain. He applauded the agency for the useful and timely proposal to Mr. President, through the instrumentality of Office of the Vice President, Prof Yemi Osinbajo. He noted that other agencies of government should be encouraged to stand on its toes to boost efforts of the current administration.

“They should create a department that will have an oversight function in checking the implementation of loans collected, if not, their efforts will be wasted. In this case, corrupt politicians will be checkmated”

Desired financial discipline

Mr Johnson said that the DMOs are ‘on top in Africa’, especially in terms of policies, adding that, “they started from the scratch and have been able to grow on their own with minimal support from government.’

He is confident that DMO will effectively manage the loans collected by the cash strapped states.

Similarly, a Business Development expert, Mr. David Eliseus, said “I think the DMO is well suited to fulfilling their responsibilities. They have exhibited this capacity overtime even in the midst of very difficult working environment. They should also be allowed to carry out their functions in a swift manner.

‘’Without doubt, we can confidently say that the DMO is efficient and well equipped to do the needful in the management of the portfolio of the states and instill in them a desired discipline to avoid the kind of recklessness that gave rise to the bailout.’’