The Central Bank of Nigeria recently commenced the disbursement of a
Special Intervention Fund approved by President Muhammadu Buhari to 27
states for the payment of several months of outstanding salaries to
civil servants. This is indeed good news. The failure of many state
governments to pay workers’ salaries for several months now has
dominated the news headlines because of the mass suffering and
socio-economic disruptions it has ignited in many parts of the country.
For the workers, their families and dependents, the joy is palpable.
The relief Fund is both timely and humane, and demonstrates that the
Buhari administration has made the welfare of workers a top priority. It
deserves the commendation of all Nigerians because it signals the end
of an excruciating period of misery and frustration for Nigerian
workers. But the benefits go beyond that. The Fund will also help to
reflate the economy by increasing aggregate demand as the workers expend
their pent-up purchasing power. This is the sort of response that
should come from any responsible, people-oriented government or
institution.
It would be recalled that the National Economic Council, in response to
widespread protests by state government workers across the country had,
at its meeting of June 29, 2015, requested the Central Bank, the Debt
Management Office and other relevant agencies to consider and recommend
ways of paying outstanding workers’ salaries owed by state and local
governments.
Following the work done by the CBN and the others, as well as
subsequent discussions, President Muhammadu Buhari on July 2015 approved
a comprehensive relief package designed to fix the challenge and lessen
the financial pressures on state governors.
The components of the three-pronged package include:
·The sharing of $2.1bn by the three tiers of government sourced from
Liquefied Natural Gas (LNG) proceeds to the federation account
·The restructuring of states’ debt-servicing payments by the Debt Management Office (DMO), and
·The CBN's Special Intervention Fund which was creatively structured to
help states access funds solely for the purpose of paying the backlog
of salaries
To underline the seriousness and urgency of the issue, the CBN last
week released the first batch of payments: Osun, N34.988b; Zamfara,
N10.020b; Kwara, N4.320Billion. News reports indicate that the affected
states have started paying the backlogs of salaries.
The next batch of payments, expected to begin from this week, are as
follows: Kogi, N50.842b; Benue, N28.013b; Imo, N26.806; Oyo, N26.606b;
Ogun, N20b; Gombe, N16.459 b; Ondo, N14.686b; Abia, N14.152b.
Also on the list are Sokoto, N10.093b; Delta, N10.036b; Ekiti, N9.604b;
Bauchi, N8.60b; Nasarawa, N8.317b; Cross Rivers, N7.856b; and Borno,
N7.680b.
The other states in this category are: Plateau, N5.357b; Niger,
N4.306b; Enugu, 4.207b; Ebonyi, N4.063b; Katsina, N3.304b; Edo, N3.167b;
Adamawa, N2.378b; Bayelsa, N1.285b and Kebbi, N0.690b.
The Central Bank is also reported to have left strict instructions to
the banks to the effect that the monies should be paid directly into the
accounts of the workers. This should prevent the diversion of the funds
to other projects by unscrupulous state governments. The expectation is
that by the end of September, all backlogs of salaries nationwide would
have been cleared. The social, financial and psychological impact of
resolving the wage crisis can only be imagined.
As already stated, the President deserves a resounding applause for
providing the resolute political leadership required to bring respite to
the workers who have suffered for so long. The Central Bank must also
be commended for the speed, professionalism and thoroughness of its
efforts to carry out the president’s directive. It has also demonstrated
in line with its often stated development vision that beyond its
traditional role as a monetary authority, it is committed and willing to
tailor its policies and make strategic interventions in ways that
directly impact the lives of Nigerians. This is what happens when a
socially committed political leadership works in tandem with a humane
monetary authority to resolve a serious national financial problem – the
people are directly impacted.
When the relief package was announced couple of months back, some
critics had argued that the government was simply out to reward the
financial recklessness of state governors with federal resources. While
it is true that some governors have been reckless, it would have been
remiss of the Buhari administration to ignore the socio-economic and
political costs of allowing the situation to go on unattended. The
reality on the ground was that the states simply did not have the
financial wherewithal to pay worker’s salaries.
National revenues had fallen by over 50% as a result of the sharp fall
in global oil prices with attendant adverse effects on state’s finances.
Only a tiny minority of the states, who had saved for the rainy day or
had good internal revenue receipts were in a position to meet their
obligations to their workers. Expectedly, majority were literally caught
napping with nothing much to fall back on. This inevitably led to their
inability to pay workers’ salaries, with some states defaulting for
upwards of eight months. The misery of civil servants was a real and
immediate concern that demanded prompt and decisive action ahead of
other considerations.
The truth is, when a nation finds itself in a situation so far-reaching
that the ability of those who drive the machinery of government to
afford food and other basics of life is threatened, all haste and
government resources must be quickly mobilized to resolve such a
situation.
This is exactly what the government has done through this relief package and it is significant at several levels.
At the human level, it will give workers the capacity to settle their
debts, pay their bills and live like decent human beings. Failure to pay
salaries had literally turned civil servants into beggars, led to the
death of many from illnesses that could otherwise have been treated and
kept their children at home due to their inability to pay school fees.
At the economic level, the Central Bank’s injection of over N300
billion into the economy will help to reflate the economy by increasing
consumer spending, which accounts for over 70% of the country’s gross
domestic product. Like most developing economies, the Nigerian economy
is largely consumer-driven. The level of economic activity rises and
falls based on consumer behavior which is determined by income. When the
capacity of people to spend on goods and services increases, the
economy flourishes, and when they curtail their spending, the economy
falters.
When viewed against the backdrop of the sharp fall in oil prices and
resulting contraction in national revenues, this action has the
potential to spark a surge in consumer spending which should stimulate
economic growth. In an economy like ours where the government is the
biggest spender, the financial system has been seriously squeezed as a
result of the fall in revenues.
In addition, it is also common knowledge that the economies of most
states outside Lagos, Abuja and Port Harcourt, revolve around the civil
service which is the number one employer of labor. The spending behavior
of civil servants, thus, determines to a large extent the health and
dynamism of sub-national economies. The non-payment of salaries along
with the general lull in economic activities literally ground economic
activities in the affected states to a halt. This situation will
hopefully change because research has overtime shown that people in like
situations are more likely to spend as much as 80% of such monies to
service debts, pay for goods and services with only a minimal portion of
it going to savings. And since one person's spending is another's
income, economists and government policy makers are of the strong view
that this action will help to strengthen the economy. The intervention
is therefore a double positive for the states concerned and by extension
the national economy.
Contrary to some misguided criticism and distortions, it is clear that
the Central Bank put a lot of thought and care to ensure that beyond
helping to fix the problem, the country is not shortchanged in anyway
but rather makes a fair profit in the long run. The funds are being
disbursed not as free money, but rather as soft loans at 9% interest
rate payable within a 20 year period. They are also tied to stringent
conditions which include provision of Irrevocable Standing Payment
Orders (ISPOs) to ensure timely repayment/deductions at source from the
states’ Federation Account allocations. It is therefore virtually
impossible for any state to avoid payment. In addition to these
conditions, the states are also required to conduct biometric
verification of their payroll so as to remove ghost workers.
The bottom-line is that the states will receive long term loans
provided at highly concessionary rates that will help them clean out the
backlog of salaries and enable them meet the terms of payments without
digging a crater into their finances. The loans will relieve the states
of a debilitating financial burden and free up funds for important
priorities like infrastructure and job creation.
Considering the fact that human lives are involved, coupled with the
political and economic consequences that the situation posed to the
country, it is clear that the President made the right call. It is a
decisive intervention by the President that has being speedily and
decisively executed by the Central Bank.
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