Economic Confidential, April 2008

NATIONAL

FG Will No Longer Guarantee States’ Loans as it Releases N109bn Capital Allocations

By Niyi Olakunle

The federal government will no longer guarantee states’ loans just as it released 109 first quarter capital allocation to ministries.

The era of state governments colluding with banks to borrow irresponsibly is over as the Minister of Finance, Dr. Shamsudden Usman, said the Federal Government would no longer guarantee state governments’ loans obtained without regard to the limits imposed by the Irrevocable Standing Payment Order (ISPO) – an instrument that supports borrowing by states from the banking system.

The Minister made this at the annual general meeting of the Nigerian Economic Summit Group (NESG) as the guest speaker advising banks to do proper assessment of the projects for which state governments approach them for loans and identify the financial requirements of such projects before granting them loans to promote fiscal federalism.

According to Usman “The use of the Irrevocable Standing Payment Order that supports borrowing by the state governments from the banking system has to examine planning issues in agriculture, education, power, and fiscal federalism.”

The minister also disclosed that the administration made some unsavoury financial discoveries in virtually all the sectors as in the power sector citing the $8.3 billion Lagos-Kano railway project contract awarded about two years ago, which nothing concrete has been done.

He said President Yar’Adua believed in proper planning before implementation, maintaining that the “with immediate effect” mentality of the past had caused the government to spend more than twice of what it ought to spend on some projects.He also gave a hint of private sector involvement in the plan.

The minister said government would continue to pursue policies that would promote macro economic stability with increased emphasis on productive investment which greater emphasis to be placed on careful planning, with a view to saving part of the high oil revenues in an Oil Reserve Fund to be used for properly formulated, designed and cost projects.

On government’s strategy on infrastructure, Usman said there was a critical need to spend on security, power, transport, and the Niger Delta, noting that estimates suggested that infrastructural investments of up to $40 billion were needed during the next six years to achieve the growth objectives of Vision 2020.

He, however, said government alone could not provide the amount needed on infrastructure as the Private Public Partnership (PPP) is essential to meet the targets on infrastructure investments. This will help solve the financing issue, the problems of limited capacity and help in enhancing the capacity of the public sector in project design, formulation, implementation, and monitoring.

Meanwhile the Federal Government has released N109 billion as capital allocations for the first quarter of the year in a move to keep the business of government going following the budget impasse.

In a press statement release by Special Assistant on Media to the Finance Minister, Mallam Sani Zorro, stated that the Federal Ministry of Finance released warrants for the 2008 first quarter capital allocations to Ministries, Departments and Agencies (MDAs) as a contingent measure given the delay in the return of the 2008 Appropriation Bill by President Umaru Musa Yar’Adua to the National Assembly for clarity on certain details.

The money is being made available from the Provisional Development Fund (PDF). The statement futher stated that the Ministry took the action “in compliance with the provision of section 82 of the 1999 constitution and section 418 of the Financial Regulations of the Federal Government.”

Zorro explained that both provisions authorize the issuance of a general warrant for payment to be made out of the Provisional Development Fund (PDF), in the event of a delay in passing the annual budget, noting that the release would also be gazetted as required by law.

He, however, pointed out that “the release only covers capital projects contained in the 2007 budget, and does not include new projects contained in the 2008 budget – which is yet to be finalised.”

The management of the Federal Ministry of Finance decided on this measure in order to make up for the lost period already suffered by the late commencement of the implementation of the 2008 budget, especially as the first quarter of the financial year comes to a close.

The National Assembly is at present working on the details of the budget for individual MDAs.

The Presidency requires the details as part of the process leading to the President’s consideration and assent to the Appropriation Bill.

While expressing the appreciation of  the Ministry of Finance to the National Assembly for taking a second look at the 2008 Appropriation Act as requested by Yar’Adua,  he  was  of the view that “the outcome will continue to put both arms of government on the same page, on this and other important national issues.”