STATE GOVERNMENTS AND ECONOMIC RECESSION IN NIGERIA

State governments have faced a myriad of fiscal challenges in the economic recession that befell the country since 2016. You may have heard in the news, or experienced first-hand, cuts in services and jobs in your State or community – or perhaps even tax increases.

Recent reports show that 17 States faced budget shortfalls and can no longer pay salaries. As at today, Delta is not owing, likewise Anambra, Borno, Edo, Ebonyi, Cross River, Rivers, Gombe, Jigawa, Kaduna, Kano, Katsina, Kebbi, Lagos, Niger, Plateau, Taraba, Zamfara and Sokoto.

Most people don’t understand the deep cut, which recession brings to revenue. That is the whole idea of budget shortfall, which is the difference between a State’s annual revenue expectations and the cost of ongoing services and existing obligations for the year.  Whenever a budget shortfall occurs, the people usually feel the pangs of economic hardship. Despite the revenue shortfall, the ability to build new infrastructure and maintain existing ones, including the regular payment of salaries is indicative of Governor Okowa’s superior economic management skills.

State governments are a sizeable component of the national economy.  State governments provide important services to the economy. State governments provide important services, such as transportation and infrastructure, education, health and pensions for public employees, among many others.

The inability of State governments to respond: In the face of record revenue declines, States have been unable to cut spending at a similar pace. Over time, though States made a noticeable effort to reduce spending but that effort has not been enough to make up for the unprecedented drop in revenue.

Second, States have limited abilities to reduce certain types of spending during a recession. One major reason for this is that demand for services provided by State governments, particularly social programmes like health and education among others are difficult to cut.

The outlook for State governments: By all accounts, the State governments fiscal crises are likely to remain bad before they get better for two primary reasons. First, State budget recoveries tend to lag recoveries of national GDP growth. Since the economic recovery is expected to be modest and gradual it could be some time until State finances are again on solid ground. 

Secondly, revenue from federation account to States will continue to be inadequate, because of the dull international oil market, with shale oil coming from USA and Canada, recovery by OPEC will remain sluggish. State governments must therefore take diversification of their economy seriously.

To succeed, they need to put in place policies to encourage manufacturing in their domain and prioritize initiatives that would boost economic activities within their states. Increased economic activities would mean the creation of direct and indirect jobs, and that would result in increased revenues in form of taxes.

The hope of majority of citizens, especially in the States is that governance would work in a manner, which would evolve self-reliant revenue sources. This would mean taking steps towards implementing the right policies, which would in turn end the hopeless dependence by the States on the Federal Government for revenue. They must be ready to think of and imagine a future without oil. That invariably points the way to agriculture, and overall steps to diversify the economy.

Good enough, a few States, including Delta are already showing the way to go in terms of diversifying their revenue base, and ending the monthly trips to Abuja.

Deduction: All sectors in the Nigerian economy have been battered by one of the worst recession and State governments are no exception. The economic downturn has depleted oil revenues at precisely the time when demand for government services have gone up. The institutional arrangements of State governments have made it difficult for authorities to respond to the record decline in revenues, while the likelihood of a rapid turnaround looks bleak.