The Federal Government has set aside N16.1 billion monthly for the settlement of N1 trillion debts owed by state governments.
The money, which is in the form of debt swap, will be paid over eight years to resolve the debts incurred by states from bailout facilities.
This initiative represents a structured approach to mitigate states’ financial burdens, with payments corresponding to previous Federal Government withdrawals from the Excess Crude Account (ECA).
This was according to the minutes of the January 2024 meeting of the Federal Account Allocation Committee (FAAC), which was later presented and adopted during the following month’s meeting at the Main Auditorium of the Federal Ministry of Finance Headquarters on February 22, 2024. A copy of the minutes was seen by Nairametrics.
FG to repay N1 trillion to states
The strategic move can be traced to the previous finance minister’s term, who had instituted a committee involving the Federal Ministry of Finance, Accountant-General of the Federation (OAGF), Nigeria Governors’ Forum (NGF), among others, with the goal of reconciling withdrawals amounting to N3.9 trillion from the ECA.
The outcome revealed an outstanding N1 trillion in favour of the states (N1 trillion withdrawn by the Federal Government), hence the establishment of the current monthly deduction strategy from the Federal Government’s FAAC allocations.
Under this setup, the Federal Government will assume the monthly financial obligations initially intended for banks, liberating the states from these specific debt repayments.
The document read: “The DHF reported that the Committee was already into the final phase of the reconciliation exercise. He informed that based on the net-off arrangement, the Federal Government would be making a monthly payment of about N16.1 billion for a period of eight (8) years towards the repayment of the debt obligations of the States in respect of the Bailout facilities.
“He explained that the payment represented the amounts taken from the Excess Crude Account (ECA) by the Federal Government, adding that the States were not to make any payment to the Banks in respect of the agreed loans.”
Mixed Reactions from states’ finance commissioners
During the deliberations, there was a notable diversity in viewpoints. While some state commissioners of finance lean towards the idea of being presented with options between debt swap and promissory notes, others acknowledge the potential financial relief the swap could bring.
The document read: “Commenting, the HCF, Akwa Ibom State sought to know whether it was possible for a State to opt-out of the proposed debt swap arrangement, noting that his State had never defaulted on repayment of its debt obligations to banks. He stated further that the proposed debt swap could have negatively impacted the already existing debt repayment arrangement of the States as agreed with Banks.”
It added: “Continuing, he (the DHF) explained that the outcome of the net-off showed that States with negative balance will continue to pay their debts while those with positive balances would be paid accordingly. He further disclosed that the discussions on modalities for effecting the payment were on-going.
“Commenting, the representative of NGF noted that some of the sentiments being expressed on the issue had already been considered by NGF, who is handling the issue on behalf of the States. He advised members to channel their objections through their principals for resolution at the Governors’ level.
“The HCF, Ogun State opined that the States should have been given the opportunity to choose between the options of debt swap or promissory notes. He noted the individuality of each States in terms of the loans acquired, mode of repayment and maturity period. He suggested the need to look carefully into the matter to enable members take the best financial decision on behalf of their States.
“In his contribution, the HCF, Borno State noted that the debt swap arrangement was important for the States as it will provide relief to the already existing commitments of the States towards strengthening their financial positions. He stated that, the decision was taken with the consent of the Governors and it was for the overall interest of the Sub-nationals.”
The Acting Chairman of the meeting and Accountant-General of the Federation (AGF), Mrs Oluwatoyin S. Madein, stressed that the FAAC did not make the decision to implement the debt swap but was a consensus among the governors. It was advised that any objections or considerations should be directed through the appropriate channels for resolution at the Governors’ level.
More Insights
Further findings by Nairametrics showed that default by state governments in Nigeria on the borrowing from Excess Crude Account was N910.65 million as of September 2023. This is according to a report seen by Nairametrics, which presents the disbursement of the over 3 trillion intervention fundby the apex bank.
Established in 2004 by then-President Olusegun Obasanjo, the ECA functions as a natural resource fund, primarily serving as a fiscal buffer during economic downturns.
The ECA accumulates revenues exceeding the benchmark crude oil price set in the national budget, providing a savings mechanism for the country. Notably, the Federal Government’s approach to withdrawing from these accounts has occasionally deviated from the standard vertical revenue allocation formula outlined by the Revenue Mobilization Allocation and Fiscal Commission (RMAFC).
This formula currently allocates 52.68% of revenue to the Federal Government, 26.72% to states, 20.60% to local governments, and 13% for derivation.
Nairametrics earlier reported that the Postmortem Sub-Committee of the Federal Account Allocation Committee (FAAC) recommended that the Federal Government refund the about N228 billion loan it took from the non-oil excess revenue account to fund the 2023 general elections.
The loan taken for the 2023 general elections makes up about 26% of the total deductions between January 2020 to October 2023, according to the sub-committee. There were other deductions made for different purposes, such as a refund of gas flared penalty to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
