The Federal Government (FG) of Nigeria has announced that it would commence deducting the N614 billion budget support facility from state governments this month. 

The Minister of FinanceBudget and National Planning, Mrs Zainab Ahmed made this disclosure in Abuja on Tuesday while presenting the draft 2020 to 2022 Medium Term Expenditure Framework and Fiscal Strategy Paper. 

The detailsThe Minister stated that the indebted states would start getting direct debits from their monthly Federation Account Allocation Committee (FAAC) disbursements. According to Ahmed, deductions would be made from the states’ monthly federal allocations and directly remitted to the Central Bank of Nigeria.

Ahmed’s statements read: “The recovery process for us is to deduct from the Central Bank of Nigeria FAAC allocation to the states and then we remit to the CBN and we are going to start these remittances by the next FAAC which will hold in two weeks’ time. 

“There will be no requirement for us to consider the FSP implementation. We do that as a matter of wanting the states to stay on the path of fiscal sustainability but it will not be a condition for the deduction. We will deduct direct at source and remit to the CBN. 

“The N614 billion bailout funds to states is not going to form part of the revenue for funding the budget, it was a loan which was advanced by the CBN and the repayment will be made to the CBN.” 

Speaking furtherAhmed disclosed that the conditional budget support was provided by the CBN to help states pay salaries, gratuities and pensions. CBN provided N650 billion in loans at 9% interest for two years. 

Zainab stated that since the Ministry of Finance only helped in disbursements with documented approval by the Presidency, the money belongs to the CBN and must be paid into CBN account. 

Challenging Outlook: While delivering updates on the outlook of the Nigerian economy, Zainab warned that Nigerians should brace up as the 2020 to 2022 fiscal years would be challenging with respect to revenue generation and rapid growth in personnel costs 

However, she assured that the government was ready to take firm decisions in order to address rising personnel cost. She said, “Any government staff not captured in the Integrated Payroll and Personnel Information System (IPPIS) by October 2019 should forget their salaries.  

“In 2020, the Federal Government plans to cut a whooping N1.16 trillion off capital expenditure from N2.92 trillion in 2019 to N1.76 trillion in the proposed 2020 budget. 

“This will then see capital expenditure dropping to 21% of total expenditure in 2020 compared to 32 per cent in the 2019 approved budget.”

Mrs Ahmed also warned that the “Africa Continental Free Trade Area (AfCTFA) could create a nightmare situation for the country unless the right policies and actions were implemented expeditiously to improve Nigeria’s economic competitiveness. 

Recent DevelopmentIn August, the Minister of Finance, Budget and National Planning, briefed State House correspondents at the end of the National Economic Council, that the FG had concluded plans to recover the N614 billion budget support (bailout fund) given to states, as a committee that would facilitate the recovery had been constituted.   

  • Ahmed disclosed that each of the 35 states that benefitted from the facility would pay back the equivalent of N17.5 billion. 
  • In an earlier publication on the bailout fund by Nairametrics, it was disclosed that FG had deducted an accumulated sum of N122.4 billion from the monthly allocation due to thirty-five (35) states between January and July 2019.  

What it meansSince the announcement, there were indications that state governors have been jittery, as this may put them in big financial strain.  

  • Meanwhile, further concerns will arise as the FG is all out to recover the bulk of bailout fund from the states once and for all.  
  • The latest move also establishes the fact that there is paucity of funds for the FG, as the Minister expressed concerns over the Nigerian economic outlook.