July 17, 2018

Greece and Nigeria: A Tale Of Two Bailouts by Magnus Onyibe

Greece and Nigeria: A Tale Of Two Bailouts by Magnus Onyibe

As it so often happens, the best hope for answers to thorny issues is by relying on history. To that effect, l to would like to turn to the Greece financial quagmire, her negotiation for a bailout by the Eurozone which has been very intense, if not controversial, and which incidentally has a parallel to the recent situation where some financially insolvent states in Nigeria have requested for and received approval by President Muhammadu Buhari for a similar financial bailout.

The Greece experience, to some extent differs from the situation in Nigeria because, while it’s the states that are requesting for bailout from the federal government from the financial mess in which they are embroiled and reflected in their inability to pay workers salaries(up to 8 months backlog in some states), the Greeks are bailout to avoid being declared bankrupt by the World Bank and Eurozone which is a regional supra government of sorts owing to Greece’s unsustainable debt profile.

Technically, both debt situations are similar because they are cases of insolvency to be resolved through fresh injection of cash into the economy. Greece banks have now been shut down with only a window of equivalent of maximum $60 per day allowable for withdrawal via ATM just as approximately twelve (12) Nigerian states which have been unable to meet salary obligations to civil and public servants require fresh funds.
For Greece to remain part of the nineteen (19) nations of the Eurozone, there are basic economic standards that it must exhibit and conform with. One of the requirements entails yielding of sovereignty over how she manages her financial affairs to the zone’s authorities comprising of European Commission Bank, ECB and European Commission Group, etc.

Greece, which is the cradle of democracy, if you recall the historical antecedents of Athens, the capital of Greece in the evolution of democracy and centre of civilization, has twice received bailouts in the past hence it’s having a tough time convincing the major creditors led by Germany and France for a third (3rd) bailout. With a whooping debt profile of some ninety six (96) billion dollars, Greece needs to first of all, cough out between seven (7) to ten (10) billion dollars to the ECB to get her economy cranking again. To qualify for the loan, Eurozone leaders are demanding that Greece meets up with some severe conditions which include far reaching reforms in the economy such as privatization of public assets, Value Added Tax and Pension tax amongst others to be enacted into law by Greece parliament before drawing down on the funds to be escrowed and co-managed by the ECB.

Compliance with the reforms recommended by Eurozone authorities entails application of austerity measures which most Greeks loathe and which government has been flouting and hence the economy has further sunk into deeper financial debt burden after two previous bailouts in the past five (5) years.

Greece debt crises

Perhaps the tough stance by the ECB and the European Commission is derived from having been disappointed by two previous failures by Greece to turn her economy around but it is a lesson that Nigerian authorities must learn with respect to the huge sum ($2.1b from NLNG and Shell plus N250-300b from CBN) that President Muhammadu  Buhari recently approved for disbursement to the debt-laden states without the necessary tough conditionality similar to the type imposed on Greece by the Eurozone authorities.

Of course I’m not by any means suggesting that the federal government bailout should be a poisoned chalice or that state governors should be put in a financial strait jacket but I’m of the view that the benefiting state government should be put under watch by professional fund managers as guaranty for accountability and recoupment of the facility. Although the twelve (12) or more cash strapped Nigerian states may not be third time bailout seekers like Greece, must we wait for them to default three times like Greece before strict conditions are applied to ensure that they don’t fall back into similar debt trap?

While not assailing the decision to bailout the states as the initiative has the capacity to reflate the already sluggish economy, especially at the micro level, some of us are of the view that President Buhari might have extended the hand of support to the ailing states without the required strict repayment plans (especially with respect to the N250-300 CBN loan) tough enough to discourage the governors, like the mythical Oliver Twist, from coming back for more. Ideally, in the absence of a cabinet or an economic council, a simple approach would have been for Mr. President to invite banks to negotiate the bailout with the states on terms similar to what the International Monetary Fund, IMF or ECB would demand. After coming to an agreement to grant the soft loan, the federal government could have provided the guaranty to the banks by depositing the $2.1 billion NLNG and Shell tax revenue plus CBN’s N250-300b with the banks as guaranty. The Debt Management Office, DMO already  mandated to renegotiate the estimated N660 billion naira states owe Deposit Money Banks, DMBs and CBN directed to raise another N250-300 billon soft loans to the states, could have been joined by any of the reputable international financial consulting firms like PricewaterhouseCoopers, Ernst&Young, KPMG and other local Nigerian financial outfits to hammer out a sustainable debt repayment framework that would help the states pay backlog of salaries and at the same time restart growth.

Amongst other benefits, in the course of negotiating the bailout, the areas of profligacy by the bankrupt states would have been identified with a view to plugging the suspected holes through which state funds have been leaking. As it now stands, that opportunity might have slipped as Nigerians and policy makers may not have the opportunity of highlighting and proffering solutions to the apparent squandering of public funds by some of those entrusted with its husbandry, if the fraud allegations being leveled against some ex-governors currently being arraigned by anti graft agency -EFCC  is anything to go by.

Understandably, most governors are not trained economists or accountants so the tendency to be indisciplined or imprudent in funds management is high and it is not helped by the pressure to implement the lofty programs and policies promised during electioneering campaigns. In that regard, it is encouraging and commendable that in some instances, what has led to the debt trap in some states is cost over-run spurred by the desire to roll out more infrastructure by some governors. The foregoing assertion is derived from the fact that to a large extent, it is aggressive and frantic efforts by governors to implement visible projects that would benefit the populace in order to generate votes that would guaranty their re-election. This is contrary to the previous attitude of governors frittering away the state resources with the plan to build up enough war chest to bribe electoral bodies and tribunals for re-election. Ironically, the prime motivator for the massive deployment of financial resources that has put some states in financial dire straits now is the current improvements in voter awareness and voting methods. This has made it increasingly impracticable to rig elections and therefore it has become wiser and much easier for governors to provide the so called dividends of democracy and get legitimately rewarded by the electorate with their votes.
As a testimony to money being put to good use in some states, modern school buildings, laboratories, hospitals, dual carriage roads and sometimes overhead bridges as well as futuristic stadiums are springing up and standing as visible products of the collective Standing Payment Orders, SPOs with the banks totaling about N660b that they have used their monthly federal allocations.

By doling out bailout money in excess of four hundred billion naira (N400b) so fast and without subjecting it to stringent financial scrutiny, the federal government might have also lost the opportunity of using the debt owed by states to civil/public servants as bargaining chips in negotiating with Nigeria Labor Congress, NLC in the event that government chooses to end the fuel subsidy and possibly sell-off public refineries. Undeniably, it is the corruption in subsidy application that has exerted the most excruciating and painful drain on public funds that some analyst estimates to be in excess of $3 billion annually. Typically, NLC would resist any attempt to remove fuel subsidy or sell off the refineries as they did in 2010 when late President Umaru Yar’adua first removed subsidy and was forced to increase minimum wage which ballooned national wage bills. Similarly, in 2012, former President Goodluck Jonathan was compelled to roll back most of the fuel pump price increase which he had imposed in January following labour unrest and national protest led by civil society organizations and supported by the APC which was the opposition party at that time.

The federal government might have used payment of outstanding civil/public servants salaries as a trade-off with the NLC because for any negotiation to be satisfactory, both parties must give up and gain something and the agreeing to pay outstanding workers salaries in the affected states would have met that criteria. However, if the backlog of salaries are paid off before the federal government decides to engage in negotiation for removal of subsidy and sale of oil refineries, NLC will seek a recompense like another salary increase for workers which in the light of the oversized recurrent expenditure in 2015 national budget at 70% on overhead and a mere 30% on capital, is not feasible. So I’m scratching my head to fathom what the federal government would be offering NLC apart from the promise that the funds saved or recovered from oil subsidy would be geared towards provision of social services to ameliorate the anticipated  consequences such as higher cost of transportation, expensive food, prohibitive house rents  etc.
If that is the case, it would be a sort of déjà vu for me as the old Petroleum Trust Fund, PTF during the Sani Abacha rule of which President Buhari was chairman; and Sure-P of the Jonathan era, with Christopher Kolade as the boss, would simply be re-enacted.

The question would then be, how efficacious were the social services rendered by the aforementioned task forces mischievously tagged quasi/parallel government compared to when the services are rendered through conventional platforms like the ministries, departments and agencies, MDAs. More importantly, how can Nigeria move past temporary measures in public policy administration?

Godwin Emefiele

On an optimistic note, the Central Bank of Nigeria, CBN has already embarked on capital control by denying access to the scarce foreign exchange to the importers of tooth pick and such inanities that could be produced locally which has been parodied by the Economist magazine of the UK. As CBN governor, Godwin Emefiele recently reported (maybe to the consternation of the Economist editors), Nigeria’s foreign reserve has grown from $29 to over $31 billion perhaps owing to the introduction of the controversial capital control measures. I’m concerned and nervous that without the states being compelled to drastically cut cost of governance such as reduction in the unwieldy number of political aids, curtailing of jumbo emoluments to legislators, unbridled acquisition of vehicles annually, wanton hiring of private jets ( which put unnecessary pressure on scarce FX), reduction of unproductive overseas trips and other areas of economic leakages, Nigerian state governors, may soon return (Greece style) cap in hand to Abuja for another financial bailout.

The fear that the bailout of financially ailing states without strict recovery framework structured to curb the gluttony of state governors is further fueled by the fact that it is unlikely that the NLNG and Shell $2.1b tax income, which were principally applied in the bailout, is sustainable as those oil/gas firms would not be able to return such hefty dividends to government again in the nearest future. More so because the price of  oil/gas may not  bounce back from the current $50.00 region to all time high of $140.00 in the boom days especially as oil rich Iran is about to be unshackled from global sanctions that barred that country from trading her oil internationally. Nevertheless, it is not too late to make amends to the seeming  egregious mistake of offering to rescue states without strict recoupment conditionality. To this end, a ‘bad bank’  with a focus on states, fashioned after Asset Management Company of Nigeria, AMCON, the Special Purpose Vehicle, launched to save Nigerian depositors from the ugly fallouts of distressed banks a few years ago, could be replicated with the DMO and CBN already mandated, as the drivers of the initiative. Independent financial firms and experts earlier listed could also be invited to join in setting up a robust platform that would help restructure and reform or create new financial templates for managing expenditures in states with the aim of steering governors towards prioritization of development as the main focus of governance. For instance, the Greece bailout makes it mandatory for the ECB to co-manage the bailout funds with the country to ensure compliance. As some analysts have argued, availing state governors of public funds, exclusive  of the state’s constitutionally approved monthly allocation from the federation account, must be backed with a robust restraining mechanism to ensure prudent deployment of the funds, otherwise the injection of more precious public funds would amount to another cash bonanza at governors beck and call and deployable for their whims and caprices and in tune with their newly acquired epicurean tastes.

As most Nigerians are aware, the CBN recently came up with a policy of advancing two (2) billion naira to each state government towards boosting small and medium scale enterprises at the grassroot level. It was mandatory for each state to contribute fifty (50%) as counterpart funding to the CBN facility. ( i e 2+1 = 3) as soft loans. The fund was never deployed for the purpose of supporting small and medium scale enterprises that were targeted but used for political patronage or outright converted by some governors to their personal use.  In the light of the above, the proposed CBN packaged N250-300b to rescue states from debt burden may go the same way if iron clad policy framework to manage the funds is not instituted hence the recommendation of the AMCON type safeguard.

Failing to institute such arrangement, I dare to wager, would render the presidential gesture counterproductive. This is because it is being predicted that international crude oil price would continue to remain bearish rather than bullish owing to the imminent lifting of the UN trade embargo on Iran thereby enabling that country release her huge oil reserve into the market and thus further depress the price. With oil price, Nigeria’s main income earner stagnating or declining in the foreseeable future, it would be a question of how soon state governors would return to Aso Rock again on bended knees to hustle President Buhari for another bailout from another financial indiscipline and delinquency.

Magnus Onyibe, a former commissioner in Delta State, development strategist, futurologist and alumnus of Fletcher School of Law and Diplomacy sent this piece from Abuja.


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