Economic crisis: States borrow N46bn from banks to pay salaries

•Access, Fidelity, Zenith lend states N46bn in six months as govs battle poor IGR

•Fiscal Responsibility Commission issues guidelines to banks on lending to states, MDAs

State governments borrow about N46.17bn from three banks to pay salaries between January and June 2023, according to findings by The PUNCH.

The findings were based on an analysis of the half-year 2023 financial statements of Access Bank, Fidelity Bank, and Zenith Bank Group.

The PUNCH observed that the states borrowed the most from Access Bank in six months, with a record of N42.97bn loan.

It was followed by Zenith Bank (N1.78bn borrowed) and Fidelity Bank (N1.42bn borrowed) within the six-month period.

According to the H1 2023 financial statement of Access Bank, the outstanding balance on the salary bailout fund was N58.84bn by June 30, 2023, from N101.81bn in December 2022.

“The amount of N58,842,651,795 represents the outstanding balance on the state salary bailout facilities granted to the bank by the Central Bank of Nigeria for onward disbursements to state governments for payments of salary of workers of the states. The facility has a tenor of 20 years with a 2 per cent interest payable to the CBN. The bank is under obligation to lend to the states at an all-in interest rate of nine per cent per annum. From this creditor, the bank has nil undrawn balance as at 30 June 2023,” Access Bank noted.

For Fidelity Bank, the H1 2023 financial statement showed that the outstanding balance on the salary bailout fund was N80.65bn by June 30, 2023, from N82.07bn in December 2022.

The bank noted “FGN Intervention fund is CBN Bailout Fund of N80.65billion (31 Dec 2022: N82.07bn). This represents funds for states in the Federation that are having challenges in meeting their domestic obligation including payment of salaries. The loan was routed through the bank for on-lending to the states. The bailout fund is for a tenor of 20 years at 9 per cent per annum.”

It added, “The bailout fund is for a tenor of 20 years at 7 per cent per annum and availed for the same tenor at 9 per cent per annum until March 2020, the rate was reduced to 5 per cent for one year period due to Covid-19 pandemic to March 2021 after which it was extended to February 2023. CBN on August 17 2022 further reviewed the rates in response to the economic outlook and approved the following order; All intervention facilities granted effective July 20, 2022 shall be at 9 per cent per annum while all existing intervention facilities granted prior to July 20, 2022, shall be at 9 per cent per annum effective September 1, 2022.”

According to the H1 2023 financial statement of Zenith Bank, the outstanding balance on the salary bailout fund was N125.14bn by June 30, 2023, from N126.92bn in December 2022.

The bank noted, “The Salary Bailout Scheme was approved by the Federal Government to assist state governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to banks nominated by beneficiary states at two per cent for on-lending to the beneficiary states at 9 per cent. The loans have a tenor of 20 years. Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured.”

The PUNCH findings show that the loans occurred despite the slight increase in the revenue allocation to states.

The PUNCH had earlier reported a N540bn increase in the amount shared between the Federal Government, states, and Local Government Areas.

This was according to an analysis of the communiqués issued by the Federation Account Allocation Committee between January to July for 2022 and 2023.

In 2022, a total of N4.96tn was shared for the first seven months of the year.

By 2023, a total of N5.5tn was shared for the first seven months of the year.

However, The PUNCH has also reported that about 25 states in Nigeria suffered a drop in their internally generated revenue and battled cash crunch in the first quarter of 2023.

Data obtained from the budget implementation report of each state showed that 25 states earned N182.26bn in Q1 2023.

This was a shortfall of 3.07 per cent or N5.77bn from the N188.03bn made in Q4 2022, based on a quarter-by-quarter analysis.

Although there are 36 states in Nigeria, Rivers and Sokoto have no data for Q1 2023 yet; Akwa Ibom has no data for Q1 2022, while Kwara, Edo, Kaduna, Lagos, Bauchi, Zamfara, Yobe, and Ogun have no data for Q4 2022.

Therefore, the figure for IGR was limited to 25 out of the 36 states in the country.

The PUNCH findings showed that the 25 states projected an IGR of N219.56bn for Q1 2023 but only made about N182.26bn, which means that they had a revenue performance of 83.01 per cent.

This also means that the revenue underperformed by 16.99 per cent as it failed to hit the states’ revenue target.

States debt

Also, The PUNCH had reported that state governments’ indebtedness to commercial banks rose to N2.2tn amid worsening revenue challenges.

This was according to data from the quarterly statistical bulletin of the Central Bank of Nigeria, which showed that states and LGAs owed banks about N2.21tn as of March 2023.

CBN data also revealed the states’ indebtedness rose from N1.97tn to the current figure, indicating an increase of about N240bn within the period under review.

Data from the Debt Management Office showed that the 36 states and the Federal Capital Territory have N5.82tn domestic debt and $4.35bn external debt.

In its December 2022 edition of the Nigeria Development Update, the World Bank noted that states’ debts would rise above 200 per cent of the revenue generated in 2022 and 2023.

The report read, “Debt levels for an average state are estimated to increase from 154.6 per cent of revenues in 2021 to above 200 per cent of revenues in both 2022 and 2023.”

Borrowing for salaries

Economic experts, who spoke with The PUNCH on Wednesday, described borrowing for the payment of salaries as dangerous, cautioning states against this.

An economist and former Vice-Chancellor of the University of Uyo, Prof Akpan Ekpo, acknowledged the bad economic situation of the country, which has compelled states to do more borrowing.

He, however, advised against borrowing for recurrent expenditures, such as salaries.

“The situation is bad but most states do not have enough in terms of internally generated revenue. A lot of the states, even their federal government allocation, cannot pay salary, which is very dangerous. You should not borrow to pay salaries.

“You should borrow to finance capital projects. States have to think of new ways of increasing their IGRs. If they continue borrowing to pay salaries, it is not good for the economy,” Ekpo said.

He urged the states to look at what they have in their states in order to find a way to increase their revenue.

Ekpo also urged the states to increase service delivery, which will attract more revenue.

A development economist, Dr Aliyu Ilias, also acknowledged the economic difficulties that states are faced with but noted that borrowing to pay salaries is a problem.

“With the current hardship we have in the country, they may not have an alternative than to resort to borrowing. But borrowing to pay salaries is becoming a problem. We must stop borrowing for recurrent expenditure. We can borrow for capital expenditure; that is okay. The consequence is that we are digging ourselves into more trouble,” he said.

He admitted that state governments might be unable to join in the Federal Government’s effort to increase allowance to workers.

He then advised, “Each state should look inward, find what they are good at and maximise it.”

Also speaking with The PUNCH, a Professor of Economics at the Olabisi Onabanjo University, Prof Sheriffdeen Tella, said borrowing for consumption is worsening the country’s inflation.

“It is part of what was creating inflation. Most of the money borrowed was for consumption, not production. It is unfortunate,” he said.

He urged the states to stop depending on the Federal Government and boost local production for more revenue generation.

A former President, the Association of National Accountants of Nigeria, Dr Sam Nzekwe, described the borrowing by states as bad.

“This is the bad borrowing we are talking about – borrowing for recurrent expenditure. That is a very bad one,” he stressed.

He further called on states to stop depending on the Federal Government, cut governance costs, and block revenue leakages.

“Most of them depend on the Federal Government. I will advise them to work hard to increase their internally generated revenue. When they do that, they have to look into the costs of governance – having a fleet of cars for themselves and aides.

“They should reduce the cost of governance and block leakages. Most of the money you see is being embezzled,” he told The PUNCH.

FRC engages banks

The Fiscal Responsibility Commission has said it is set for a stakeholder dialogue on how to implement sections of the Fiscal Responsibility Act, 2007 relating to lending by banks to governments and public institutions in the federation.

The agency, which is saddled with the task of promoting a transparent and accountable government financial management framework for Nigeria, disclosed this in a statement by its spokesman, Bede Anyanwu, on Wednesday.

The statement read, “The Fiscal Responsibility Commission has concluded preparations to hold a stakeholder dialogue on implementing sections of the Fiscal Responsibility Act that relate to lending by banks to governments and public institutions in the Federation.

The Fiscal Responsibility Act 2007 (FRA), which is Nigeria’s foremost legal framework for the promotion, monitoring, and enforcement of fiscal discipline and accountability in the management of public finances, stipulates that lending by banks to governments or their agencies in contravention of certain provisions of the Act shall be unlawful.

The statement added, “The Commission aims at using the stakeholder dialogue to refresh the attention of stakeholders to this provision of the Act and to engender stakeholder agreement on ways to enhance compliance and thereby improve the nation’s debt management practices.”