March 24, 2024 – In a recent disclosure, it has come to light that 31 state governments in Nigeria are indebted to the Central Bank of Nigeria (CBN) for a cumulative sum of N339.9 billion. This debt accrues from bailout funds borrowed between 2015 and 2023, aimed at facilitating the payment of workers’ salaries during times of financial difficulty. The outstanding amount, which includes a loan default of N1.31 billion, remains unpaid as of September 2023.
This financial assistance was part of a broader intervention by the CBN under its former governor, Godwin Emefiele, amounting to over N10.3 trillion. The current governor, Olayemi Cardoso, however, has halted the program amid the nation’s persisting economic challenges.
The Salary Bailout Facility (SBF) was initiated to aid state governments in clearing backlogs of salaries owed to their employees. This initiative highlights the CBN’s crucial role in stabilizing Nigeria’s financial environment during fiscal crises at the state level.
Despite disbursing a total of N457.17 billion under the initiative, repayments from the benefiting states have been minimal, with only N117.21 billion returned as principal and N45.21 billion as interest.
The funds were instrumental in enabling the states to meet their payroll obligations, yet the repayment delay suggests ongoing fiscal management issues within these state governments. The top recipients of this facility include states like Imo, Kogi, Kano, Oyo, and Osun, with Imo State receiving the highest amount of N20.46 billion.
The financial health of these states has been under scrutiny, especially as many have struggled to meet their payroll commitments without federal allocations. This situation has amplified calls from labor unions for wage increases beyond the current minimum wage of N30,000.
Financial experts have expressed concerns over the states’ spending, emphasizing the need for fiscal federalism and the attraction of investments to enhance internal revenue generation. The sustainability and solvency of state finances are at risk, necessitating a more creative approach to revenue generation and fiscal management.
In light of the recent increase in Federal Account Allocation Committee (FAAC) disbursements following the removal of petrol subsidies and currency reforms, there is an opportunity for states to improve their fiscal health. However, the reliance on federal allocations and external borrowing poses significant challenges to the economic independence and sustainability of state governments in Nigeria.
As Nigeria navigates these fiscal challenges, the focus on attracting investments, enhancing internal revenue generation, and adopting financial innovations becomes increasingly critical for the stability and growth of the nation’s economy.
