The Federal Government has given a lifeline to state governments by suspending the deduction of loan from the Federation Account, this is to enable state governments meet up with their salary obligations.
While briefing State House correspondents after a National Economic Council (NEC) meeting on Thursday, presided over by Vice-President Yemi Osinbajo, at the Presidential Villa, Abuja, the Honorable Minister of Finance, Mrs Kemi Adeosun, said federal government decided to make more money available to the states, because it realised it could not run the economy on austerity measures.
She further said the deferral will be for one month in the first instance, but that the Federal Government had now requested state governments to provide their financial profiles, to enable it determine how long it would continue the suspension of the loan deductions.
“The approval I have is for the current month, but with the proviso. What we discussed is that the current situation in the economy requires some actions and what we need to do is to understand the financial profile of states in detail, so that we can understand how long we need to support them with loan deferrals”.
When asked about the possible consequences of the deferrals on the economy, she said “I think I will switch to say what is the effect of non-payment of salaries on the economy? That, for us, is really the issue. We have go to put money into people’s pocket, so that they start spending just to get the economy moving.
“Nobody stimulates the economy by austerity but by spending. So, in some states, as you know, the state government is the highest employer of labour. So, if the state government is unable to pay, nothing happens.
“We have prioritised getting the states back into good financial health. Now, part of that is this commitment to fiscal sustainability and that is why we have asked the states to commit to cleansing their payroll, commit to efficiency and maximising their internally generated revenue.
“We have asked them to give us their financial data so that we can work together to create financial module and understand what government needs to do to support the states.”
The minister also revealed that “Of-course, we are borrowing, but we have got to make sure that we are borrowing to support the states that are fiscally sensible and prudent in their money management.
“So, the answer is we have a month guaranteed, but we are asking for information from states to enable us to build a module so that we would know if it is three months, six months or how many months to supplement the shortfall to ensure that within reasonable parameters, majority of states can pay salaries and that is taking into account that different states have different obligations and different profiles. The idea is to support them to be able to pay” .