As 2018 gets under way, strikes and sit-ins by public sector workers demanding their pay should jolt our 36 state governors to undertake a radical overhaul of their fiscal practices. Governor Rauf Aregbesola exposed the precariousness of the current template by his admission that personnel costs alone amounted to over 85 per cent of the total revenue that accrued to Osun State between July 2015 and November 2017. This is typical of most other states and the message must be rammed home that apart from the primary role of protecting life and property, governments exist to galvanise the people for productive activities.
The 36 states and 774 local government councils must understand that they are not constituted only to pay salaries and pensions. According to a Canadian government policy document, “Regional governments are a geographically larger level of government over existing municipalities to provide area-wide municipal functions more economically and to establish a tax base sufficient to undertake necessary new services.”
In Nigeria, unlike other federal entities, the opposite is the case today. Aregbesola, in response to plans by state employees to strike to protest partial pay, captured the dysfunction of our state governments and LGs: “…our income from all sources, including gross allocation from the Federation Account, internally generated revenue and two tranches of Paris Club refund (July 2016 to November 2017) is N121.6 billion. From this, total personnel cost is N104.4 billion (85.8 per cent).” With a salary bill of N3.6 billion per month, he said, “our personnel cost therefore is 85.5 per cent of our total revenue from all sources.”
His response, in place of downsizing the bureaucracy, has been “modulated salary payment,” wherein some workers are paid fractions of their salaries. There is a great challenge for Osun to radically reverse its present position whereby “our net income is N61.7 billion, while our real personnel cost is N63.98 billion,” 103.5 per cent of income. The state is not alone. The inevitable result of such pervasive fiscal policy mess is unpaid or delayed salaries and pensions, crippling debts and poor infrastructure and social services in at least 23 states of the federation.
In Benue, the governor once lamented grappling with a monthly wage bill shortfall of over N3 billion. Tabulation by the Nigerian Union of Local Government Employees said by June 2017, 23 states owed state and LG workers between one and 16 months salaries. In some states, pensioners have not received their stipends for over two years. The LG system has failed, as state governors routinely hijack their direct allocations through the controversial States/LG Joint Accounts, single-handedly handpick officials and leave barely enough funds for the council bosses to pay salaries.
Sadly, the Federal Government too is not immune to this enslavement of public resources servicing only a few through salaries and overheads. Even after reducing the federal wage bill to N165 billion monthly (N1.98 trillion a year), the Minister of Finance, Kemi Adeosun, said this amounted to about 40 per cent of total government expenditure, lamenting, “we have been borrowing to pay salaries for years.”
This self-destructive model must give way to a more rational public finance management system. The solution must begin with a proper diagnosis of what went wrong: the overthrow of fiscal federalism. It is a slide rich in irony; for when Nigeria first codified the federal principle through the 1954 Macpherson Constitution, it “provided fiscal autonomy to its three regions both over expenditure decisions and over a local revenue base (consisting primarily of mining rents, personal income tax, and receipts from licences). Centrally collected revenues, primarily from export, import and excise duties, were distributed to the regions based on the derivation principle,” according to a World Bank report. This allowed vibrant, self-sustaining regions and LGs that competed fiercely and ran successful administrations. But the violent intrusion of over-centralising military rule since 1966 gradually eroded fiscal autonomy with multiple new states and LGs completing the descent that has turned today’s states and LGs into beggars. India’s richest state, Maharashtra, leveraging fiscal federalism, reported a revenue surplus of $24 million in 2012 and foreign direct investment of $53.48 billion in 2014.
But not only have our own states become dependent, poor fiscal managerial skills, recklessness and corruption have enslaved 180 million Nigerians to servicing those (the civil servants) that Governor Nasir el-Rufai, put at only one per cent of the population in Kaduna State. The Federal Government will spend N6.18 trillion this year on salaries and overheads out of its N8.6 trillion budget that has only N2.42 trillion for capital projects. A radical overhaul of the public service should be put in place at the three tiers. We cannot continue a system where Kano State, for instance, currently has a monthly wage bill of N9 billion but generates less than N6 billion internally.
In spite of an injection of N1.64 trillion into the states and LGs in the three years to October 2017, from the Excess Crude Account drawdown, refunds, budget support and grants, according to President Muhammadu Buhari, all to help the two tiers meet salary and pension obligations, many of them still owe.
There is no alternative to radical reform; funds are simply no longer there to waste. The World Bank reports that, globally, regional governments are increasingly deploying Information Communications Technology to increase accountability, sustainability and quality of service. The over 542 federal ministries, departments and agencies should be pruned with similar cost-cutting at the states and LGs. Governors should downsize their outsized cabinets and retinue of aides, dispense with the massive vehicle fleets and cut their travels and expensive living. They should return to the drawing board to free resources for rural infrastructure and make their states magnets for investments in agriculture, mining and SMEs.