Govs to begin palliative loans repayment Dec, FG gives three-month grace
•Gombe, Katsina get N2bn each, lament inadequate relief items, Obaseki knocks FG
The fresh subsidy palliative loans may drive 36 states’ borrowing from the Federal Government to N1.34tn, according to findings by The PUNCH.
The debt under the budget support facility of the Federal Government included a N614bn debt as of 2019, another debt of N656bn in 2021, and a fresh N69.12bn debt as subsidy palliative this year.
This debt is likely different from states’ domestic debt of N5.48tn as of March 2023 and external debt of $4.4bn as of December 31, 2022, as recorded by the Debt Management Office.
Findings by The PUNCH showed that as of 2019, the total debt owed by the 36 states to the Federal Government under the budget support loan facility was N614bn.
The former Minister of Finance, Budget and National Planning, Zainab Ahmed, had disclosed during a National Economic Council briefing in August 2019 that the Federal Government “has made a total of over N614bn available to 35 States.”
This total included an approved N28.8bn as a budget support loan facility to the 36 states of the federation in 2017.
It was also reported during the briefing that the government would “constitute a team from the Nigerian Governors Forum to meet with the Central Bank of Nigeria and Ministry of Finance to finalise modalities for commencement of payment.”
In November 2021, the National Economic Council said former President Muhammadu Buhari approved a fresh N656bn Bridge Financing Facility for the 36 states.
The former finance minister said the support was to help state governments meet their financial obligations, especially the previous budget support facility due for repayment.
According to her, each state will receive N18.2bn, and the bridge facility was being processed by the CBN.
“The approved bridge facility of N656.112bn will be disbursed in six tranches over a period of six months to the states.
“Expectedly, each of the 36 States will have a total loan amount of N18.225bn; with a 30-year tenor, and a two-year moratorium at an interest rate of nine per cent.
“The facility is to help the states afford the repayment of previous bailout facilities guaranteed for them by the Federal Government,’’ she said.
It is expected that the states will start making repayments next year, which will be the end of the two-year moratorium.
However, the Federal Government last week announced a N5bn palliative for each state of the federation, including the Federal Capital Territory to cushion the impact of the removal of the petrol subsidy.
The policy, which led to sharp and multiple increases in fuel pump prices, has driven up the costs of goods and services, pushing millions of Nigerians into poverty and worsening the socio-economic situation in the country.
However, a statement signed by the Director-General of the Nigeria Governors Forum, Asishana Okauru, said the offer is “optional” and urged states who are not interested to refund the N2bn already disbursed to them.
“Your Excellency is invited to note that this offer is optional and states that do not wish to participate may opt out and refund the N2bn already disbursed to them.”
According to the terms of the facility, contained in the memo to the governors, a total of N4,000,000,000.00, will be disbursed as follows: Loan (48 per cent)- N1,920,000,000.00; FGN Grant: (52 per cent) N2,080,000,000.00; Beneficiary: each state government; repayment period: 20 months.”
The facility which carries a moratorium of three months, is also interest-free, while a monthly deduction of N120,000,000.00 after three months applies.
Unlike the previous facility in 2021 with an interest rate of nine per cent, the current one, which is a total of N69.12bn is interest-free.
However, state governments are expected to begin repayment by December after the three-month moratorium.
The Chairman of the Nigeria Governors’ Forum and Governor of Kwara State, AbdulRahman AbdulRasaq, confirmed the receipt of N2bn of the N5bn announced by the Federal Government.
According to the arrangements, while the states are expected to get N4bn in cash, N1bn will come in the form of foodstuff, 40,000 bags of maize, precisely.
The NGF chairman said, “We have received N2bn out of the N4bn relief funds that the Federal Government released to states for the purchase of rice to be distributed en masse to vulnerable members of the public to cushion the effects of fuel subsidy removal.
“We await a balance of N2bn of the funds as well as N1bn worth of maize (40,000 bags) which the Central Bank of Nigeria is selling to each state from the national strategic reserve.”
“It is, however, important to mention that 48 per cent (N1,920,000,000.00) of the N4bn is a non-interest loan that will be paid back over a period of 20 months at N120,000,000.00 monthly.
“Consequently, I have ordered the immediate purchase of rice in the value of the amount.”
The PUNCH also learnt that repayment of the loan had been a major issue between the states and the Federal Government.
In July 2021, the CBN and state governors agreed to start deductions from the budget support facility.
This was after a planned repayment earlier in September 2019.
However, the repayment plan had caused a rift between the governors and the apex bank.
In May 2021, the suspended CBN Governor, Godwin Emefiele, had asked states to start repayment, but the governors insisted on postponement.
The Federal Government extended the conditional facility to states in 2017 through the CBN to help cushion the impact of dwindling resources and help meet their various obligations.
At the expiration of the two-year grace period, the deductions were suspended for one year to enable states to stabilise their finances following the outbreak of the COVID-19 pandemic.
As of the time of filing this story, The PUNCH could not confirm if any form of repayments had been made by states yet.
However, it seems there was no deduction made as NEC said in October 2022 that it would review the CBN’s plan to commence deductions from state governments’ share of the monthly federal allocations.
The deductions are for the repayment of the Federal Government’s budget support facility.
According to a statement released by Laolu Akande, former spokesperson to the former Vice-President, Yemi Osinbajo, the decision to review the repayment was in consideration of current difficulties experienced by state governments in fulfilling their financial obligations.
FAAC allocations increase
The PUNCH further learnt that there was an N540bn increase in the amount shared between the Federal Government, states, and Local Government Areas, following the removal of fuel subsidy.
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.
Reacting to the high debt burden of the states, the Director, Research & Strategy at Chapel Hill Denham, Mr Tajudeen Ibrahim, said, “The debt size is relatively small at N5bn for state. So it is unlikely to have a significantly negative impact on their finances. Nevertheless, I think the states are in a better position these days in terms of revenue sharing from the Federal Account Allocation Committee. Because what they are sharing these days looks bigger than what Nigeria was generating before now. So I think it is relatively small at N5bn per state. And the impact on their balance sheets should not be too much for the balance sheets to bear.”
Also speaking, a professor of Economics at Covenant University, Jonathan Aremu, explained that the palliative loans given to the governors might end up being used to repay loans being owed by the states.
He added that some governors could end up using the money to demand foreign exchange, which could further worsen the forex crisis in the country.
He said, “Some of them may use it to pay the loans rather than use it as palliatives, depending on the urgency. If the loan is something that is giving them more sleepless nights than palliatives, they can divert it.
He also expressed worry that pumping money into the economy without corresponding production would only worsen the inflation crisis in the country.
“When you pump money into the economy without corresponding production of goods and services; whether you do it silently or loudly. It will have the same effect on the market. It will lead to inflation.
Gombe, Katsina palliatives
Meanwhile, the Gombe State Governor, Muhammadu Yahaya, has said the state has only N2bn out of the Federal Government’s N5bn palliatives fund.
He spoke at the grand finale of the distribution of the palliatives at the Gombe Emir’s palace ground, on Wednesday, where 5kg bags of rice, fertilisers, pesticides and cartons of macaroni or spaghetti were given to the beneficiaries.
He said, “For those anticipating that, as a result of the N5bn the Federal Government is giving to the states, there will be a miracle; N2bn only hit the account of Gombe State Government and we have N2bn worth of rice.
“I have my doubts whether the Federal Government, through the CBN or through any of its agencies, has that much in the reserves. For instance, the grain silos in Gombe which were owned by the Federal Ministry of Agriculture have been leased to a private company meaning the 25,000 tons that should have been strategic grain reserves were already out of the control of the government and in private hands.”
Also, the Katsina State Government has clarified that it received N2bn from the Federal Government to purchase grains for the people of the state as palliatives.
Speaking at a press briefing in Katsina on Wednesday, the state Information and Culture Commissioner, Bala Zango, said Governor Dikko Radda had directed each of the 34 LGAs to purchase and distribute grains to the people in their respective councils.
Zango explained, “Katsina Stte Government under the leadership of Mallam Dikko Umaru Radda has already utilised the N2bn received and purchased 40,000 bags of rice to be distributed to each polling unit in the state Government under the leadership of Mallam Dikko Umaru Radda has already utilised the N2bn received and purchased 40,000 bags of rice to be distributed to each polling unit in 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 said, “I have always warned, I warned Nigerians during the last May Day this year. I told them that we have come to the end of the road and that the old economic order in Nigeria is gone and we have to come up with a new economic order and stop deceiving ourselves as a nation.
“Now the subsidy is gone; the exchange rate is being aligned. The era of free money has almost come to an end. The consequence is that the weakest and most vulnerable in our society, unfortunately, will carry a huge part of the burden of these policies.”
Obaseki said he was appalled by the lack of plans by the Tinubu administration to contain the situation brought about by the subsidy removal.
“I am shocked and scared of what we are passing through today where the government doesn’t seem to have a plan or solution on how to respond to the consequences of the policy measure put in place by their administration.
“With the way they have mismanaged our national economy, we have to deal with inflation, between 20 and 25 per cent. It means that the people will feel more pain, especially the weak and vulnerable in the society, particularly our pensioners as whatever they get as their entitlement will do only little for them,’’ he observed.
Source: The PUNCH