States to repay bailout loans from allocations

It has been revealed that the bailout package being prepared by the Central Bank of Nigeria for the 36 states of the federation is to be deducted from their statutory allocations.

On Monday revealed that some state governors had started visiting the central bank to discuss modalities on how and when the funds would be released.

It was gathered that the CBN would release the package to the states as concessionary loans to be repaid over a longer period of time rather than the funds being given in form of a grant.

The Presidency said the implementation of the three-pronged financial intervention recently approved by President Muhammadu Buhari to support the states to pay their workers was now in progress.

The Senior Special Assistant on Media to the Vice President, Mr. Laolu Akande, said this in a statement.

Akande said state governments would start benefiting from the special intervention fund of between N250bn and N300bn in a matter of weeks. 

He explained that planning meetings were currently being held between members of the Federation Account Allocation Committee and the CBN on the one hand, and between the central bank and commercial banks on the other hand.

A top official in the Ministry of Finance said that one of the criteria that might be used for the disbursement of the funds would be for the states to sign Irrevocable Standing Payment Orders guaranteeing the repayment of the loans.

He said while the deductions from the states’ statutory allocations might not be immediate, owing to declining revenue, it would be implemented as soon as the country’s revenue profile improved.

The source said,

This issue of bailout came directly from the Federal Government and it is an issue that must get the support of the CBN and other stakeholders for it to work. You will recall that what necessitated the CBN to intervene was because most states took short-term loans to finance long-term projects as well as service their obligations. 

“So, once these loans are restructured, which is what the CBN is currently doing, they will be repaid and the only way that the funds can be recouped is to deduct whatever is their indebtedness as a result of the bailout from their allocations, but this may not be done immediately until revenue improves.”

 Another top official of the CBN also added that some state governors had been visiting the bank since last week to have further discussions on the modalities for the package.

The CBN Governor, Mr. Godwin Emefiele, had on Friday, when asked about the modalities for the package, said that they were still being worked out.

He said while the funds would be given to the states in form of loans, the bank would meet with the governors and the commercial banks to restructure their expenditure and revenue profiles.

He also said the CBN would meet with the state governors to encourage them to diversify their internally generated revenues so as to boost their states’ revenue base.

Akande said the meetings of the stakeholders had focused on the details of the special intervention fund and the debt relief programme of the President for the states.
He said,

 “Such meetings are reviewing loan profiles of the states, issues around restructuring of existing loans, including time span, and reconciling the figures. Already, it has been agreed that the existing state loans be restructured for 20 years, and regarding the bond option, the rates to be applied will be market-based but with a cap to make it affordable. 

“Within weeks from now, the states are expected to start benefiting from these two other parts of the presidential intervention.” Akande said by extending the commercial loans of the states, the third part of the intervention would make more funds available to the state governments, which otherwise would have been removed at source by the banks.

 He further explained that to be able to offer the option to the states, Buhari brought the financial muscle of the Federal Government to bear by guaranteeing the elongation of the loans.

He said,

 “Besides, the availability of the $2.1bn from the NLNG, which has now been shared to the states, was made possible because President Buhari set a new fiscal standard and tone that all monies generated should go to the Federation Account.

“Before that constitutional standard was upheld by the President, the NLNG dividends were going to other NNPC designated accounts.

“None of the three parts of this intervention would have been possible without the creativity and approval of President Buhari. It should be noted that the backlog of the salaries in some of the states went back several months before the President took office.”