The Federal Government has announced that it is offering State Government’s a N90 billion loan, which it hopes will assist states in meeting its monthly fiscal obligations to its citizens and also ensures that they are less reliant on the Federation Account.
The loan which Nairametrics has termed the “Adeosun Bond” contains some of the most stringent conditions precedent to getting a loan we have seen for States in recent times. We wonder how quickly the states can actually fulfill these conditions.
Reports also suggest that the loans will be given out over a one year period provided that the states meet 23 conditions. The Minister of Finance Kemi Adeosun insisted that the loan is not a bailout but a loan from the private sector via bonds.
“This is a loan that we have secured from the private sector and it has conditions attached to it. So, it’s actually a loan that is going to be repaid. It’s not a bailout. When you want to borrow money, the lenders set the conditions and these conditions are very stringent conditions; there are 22 of them and the states have signed up to them.
“The governors unanimously approved the plan; the commissioners approved the plan and it’s going to involve a lot of work in some places. There are a lot of tough conditions. So, the governors and commissioners recognised that these reforms are necessary if they want the states to be fiscally sustainable.
“The amount of the loan is N50bn for three months to be shared among all the participating states, which are 36 so far; and then, N40bn for nine months.”
“The idea is to tie the states for a year so that they can balance their portfolio, which is an average of about N1.3bn for the states for the first three months; and then, N1.1bn for the next nine months.
“It’s a loan and it’s going to be fully repaid because it’s been secured with future dividends, revenues and any amount that the Federal Government may owe the states.” Adeosun
The conditions which the states must fulfill are listed below;
- Publish audited annual financial statements within nine months of financial year end.
- Comply with the International Public Sector Accounting Standards (IPSAS).
- Publish state budget online annually.
- Publish budget implementation performance report online quarterly.
- Develop standard IPSAS compliant software to be offered to states for use by state and local governments.
- Set realistic and achievable targets to improve independently generated revenue (from all revenue generating activities of the State in addition to tax collections) and ratio of capital to recurrent expenditure.
- Implement targets
- Implement a centralised Treasury Single Account (TSA) in each State.
- Have quarterly financial reconciliation meetings with Federal Government to cover VAT, PAYE remittances, refunds on government projects, Paris Club and other accounts.
- Share the database of companies within each State with the Federal Inland Revenue service (FIRS). The objective is to improve VAT and PAYE collection.
- Introduce a system to allow for the immediate issue of VAT / WHT certificates on payment of invoices. Review all revenue related laws and update obsolete rates / tariffs.
- Set limits on personnel expenditure as a share of total budgeted expenditure.
- Biometric capture of all States’ Civil Servants will be carried out to eliminate payroll fraud.
- Establish Efficiency Unit.
- Federal Government online price guide to be made available for use by States.
- Introduce a system of Continuous Audit (internal audit).
- Create a fixed asset and liability register.
- Consider privatisation or concession of suitable State-owned enterprises to improve efficiency and management.
- Establish a Capital Development Fund to ring- fence capital receipts and adopt accounting policies to ensure that capital receipts are strictly applied to capital projects.
- Domesticate Fiscal Responsibility Act (FRA).
- Attainment and maintenance of a credit rating by each State of the Federation.
- Federal Government to encourage States to access funds from the capital markets for bankable projects through issuance of fast- track Municipal bond guidelines to support smaller issuances and shorter tenures.
- Comply with the FRA and reporting obligations, including: No commercial bank loans to be undertaken by States; Routine submission of updated debt profile report to the DMO.