Why bailout for states will continue despite N1.64 trn so far

Why bailout for states will continue despite N1.64 trn so far

President Buhari in his Independence Day speech admitted that the Federal Government has in the past two years supported states with different facilities to the tune of N1.64 trillion.

The states got N200 billion in 2015, N441 billion in 2016 and so far this year have received N1 trillion.  These disbursements come to an average of N44 billion per state, if the Federal Capital Territory is included.  However, it must be noted that not all states got equal amounts. Some states got more disbursements than others.

The disbursements complement the monthly FAAC allocations from the federation account as well as whatever internally generated revenues that states are able to raise.

The disbursements were given primarily to help states pay salaries and allowances of their workers after drop in crude oil prices and subsequent Federal Government revenues left many states struggling to meet their basic obligations.

But despite these allocations, the Nigeria Union of Local Government Employees, (NULGE), said in June that 23 states still owe local government workers arrears of salaries and allowances running from one to 16 months. Also a survey by BudgIT in June revealed that a minimum of 20 states owe salaries, allowances and pension ranging from a period one to 36 months. This clearly shows that despite the Federal Government’s initiative of doling out cash to the state governments, without any obligation on their part to put in place fiscal discipline measures, most states have taken the easy way out; that is, collect the money, pay off some of their obligations and wait for the next bail out.

It is not surprising that each subsequent bail out has been higher than the initial one. Like it is often described, the Federal Government is helping entrench the ‘feeding bottle’ model federalism where states survive on hand outs from the centre. Where the hand outs do not come, many states are practically helpless.

Did crude oil sell for US$100 and above between 1999 and 2015?

 The opening statement of President Buhari’s Independence Day speech reminded us not to forget about the immediate past of 1999-2015 during which the country returned to democratic rule. He also stated that ‘in spite of oil prices being an average of $100 per barrel and production of about 2.1m barrels a day, that great piece of luck was squandered and the country’s social and physical infrastructure neglected.’

This statement insinuates that crude oil prices remained an average of US$100 between the periods 1999 to 2015. Is that really correct?

OPEC data definitely shows that crude oil prices did not average US$100 between 1999 and 2015. In fact from 1999 to 2004, crude oil prices remained largely below US$50. Crude oil prices first crossed the US$50 mark in 2005 but remained well below the US$100 mark until its crossed US$100 per barrel for the first time in 2011.  It only sold above US$100 per barrel between 2011 and 2013 and sold at an average of US$96 in 2014 and since 2015 has sold slightly above US$40 per barrel.

This trend therefore shows that crude oil only sold above the US$100 mark in only three years between 1999 and 2015. It was therefore misleading for President Buhari to give the impression that oil sold for US$100 for the whole 16-year period.

Even though on the production side, Nigeria has for some time maintained an OPEC quota of 2.2 million barrels per day, actual crude oil production has most of the years averaged 1.8 million barrels per day, hence the country’s recent decision to cap crude oil at that figure as part of the OPEC agreement to cut global crude oil production.

While it is also true that the management of national resources in the past has not been perfect, the facts must not be twisted to suit the narrative. Tomorrow, when this government may no longer be in power, some future government may follow the precedent being set today. Presidential speeches must be fact checked. It should not be a platform to play politics.

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