Re: USA Africa Dialogue Series - STAR LIST: Of 23 Conditions States Must Fulfill Before They Get The N90 billion Government-Insured Private Loans {Re: FG secures N90bn conditional loan for states | Punch Newspapers

It would be interesting to know the following additional information on these "Loans":

a. What is the the stated rate of interest on this loan and whether the interest rate is fixed or variable?

b.  Any relationship between the loan amount and the ability to pay back the loan for each state? For example, is there a stipulation on the ratio of the monthly

        loan interest payment and monthly revenues of the state?

c. Do these states need the approval of the state legislature before taking these "loan" or any other loans?

d.  What recourse does the "lender" have in case the term of the loan are not met or in the case of default?

e.  If the loans are from the private sector, what exactly is the role of the Federal government in all these? 

Kasim Alli.

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From: Mobolaji Aluko <alukome@gmail.com>
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Sent: Wed, Jun 15, 2016 12:04 pm
Subject: USA Africa Dialogue Series - STAR LIST: Of 23 Conditions States Must Fulfill Before They Get The N90 billion Government-Insured Private Loans {Re: FG secures N90bn conditional loan for states | Punch Newspapers

http://nairametrics.com/states-to-get-n90billion-loan-from-fg/

List Of 23 Tough Conditions States Must Fulfill Before They Get The N90 billion "Adeosun Bond"

 Nairametrics

The Federal Government has announced that it is offering State Government's a N90 billion loan, which it hopes will assist states in meeting its monthly fiscal obligations to its citizens and also ensures that they are less reliant on  the Federation Account.

The loan which Nairametrics has termed the "Adeosun Bond" contains some of the most stringent conditions precedent to getting a loan we have seen for States in recent times. We wonder how quickly the states can actually fulfill these conditions.

Reports also suggest that the loans will be given out over a one year period provided that the states meet 23 conditions. The Minister of Finance Kemi Adeosun insisted that the loan is not a bailout but a loan from the private sector via bonds.

"This is a loan that we have secured from the private sector and it has conditions attached to it. So, it's actually a loan that is going to be repaid. It's not a bailout. When you want to borrow money, the lenders set the conditions and these conditions are very stringent conditions; there are 22 of them and the states have signed up to them.

"The governors unanimously approved the plan; the commissioners approved the plan and it's going to involve a lot of work in some places. There are a lot of tough conditions. So, the governors and commissioners recognised that these reforms are necessary if they want the states to be fiscally sustainable.

"The amount of the loan is N50bn for three months to be shared among all the participating states, which are 36 so far; and then, N40bn for nine months."

"The idea is to tie the states for a year so that they can balance their portfolio, which is an average of about N1.3bn for the states for the first three months; and then, N1.1bn for the next nine months.

"It's a loan and it's going to be fully repaid because it's been secured with future dividends, revenues and any amount that the Federal Government may owe the states." Adeosun

The conditions which the states must fulfill are listed below;

• 1.   Publish audited annual financial statements within nine months of financial year end.
• 2.   Comply with the International Public Sector Accounting Standards (IPSAS).
• 3.   Publish state budget online annually.
• 4.   Publish budget implementation performance report online quarterly.
• 5.   Develop standard IPSAS compliant software to be offered to states for use by state and local governments.
• 6.   Set realistic and achievable targets to improve independently generated revenue (from all revenue generating activities of the State in addition to tax collections) and ratio of capital to recurrent expenditure.
• 7.   Implement targets
• 8.   Implement a centralised Treasury Single Account (TSA) in each State.
• 9.   Have quarterly financial reconciliation meetings with Federal Government to cover VAT, PAYE remittances, refunds on government projects, Paris Club and other accounts.
• 10. Share the database of companies within each State with the Federal Inland Revenue service (FIRS). The objective is to improve VAT and PAYE collection.
• 11. Introduce a system to allow for the immediate issue of VAT / WHT certificates on payment of invoices. Review all revenue related laws and update obsolete rates / tariffs.
• 12. Set limits on personnel expenditure as a share of total budgeted expenditure.
• 13. Biometric capture of all States' Civil Servants will be carried out to eliminate payroll fraud.
• 14. Establish Efficiency Unit.
• 15. Federal Government online price guide to be made available for use by States.
• 16. Introduce a system of Continuous Audit (internal audit).
• 17. Create a fixed asset and liability register.
• 18. Consider privatisation or concession of suitable State-owned enterprises to improve efficiency and management.
• 19. Establish a Capital Development Fund to ring- fence capital receipts and adopt accounting policies to ensure that capital receipts are strictly applied to capital projects.
• 20. Domesticate Fiscal Responsibility Act (FRA).
• 21, Attainment and maintenance of a credit rating by each State of the Federation.
• 22.  Federal Government to encourage States to access funds from the capital markets for bankable projects through issuance of fast- track Municipal bond guidelines to support smaller issuances and shorter tenures.
• 23. Comply with the FRA and reporting obligations, including: No commercial bank loans to be undertaken by States; Routine submission of updated debt profile report to the DMO.

_______________________________________________________________________________

On Wed, Jun 15, 2016 at 3:27 PM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com> wrote:

Prof Aluko

You raise valid concerns. 

I read it a little bit differently though:

1. The amount stated is an 'average' figure so I reasonably expect the actual sum to each state will be different and aligned to 'capacity to repay'

She added, "The idea is to tie the states for a year so that they can balance their portfolio, which is an average of about N1.3bn for the states for the first three months; and then, N1.1bn for the next nine months.

2. The fact that the loan ( not a bail out) is from the private sector and secured :

It's a loan and it's going to be fully repaid because it's been secured with future dividends, revenues and any amount that the Federal Government may owe the states."

should limit the amount of the loan to each state to the security available ( one hopes)

Having said all that, how the governors use the loans is where the rubber hits the road. I am in total agreement with yours:

I would like to see a table in which it could turn out that some states get half of the average stated above, and others even twice of what was stated above, based on a combination of evaluated needs and ability to pay back.

It will help stakeholders at state level hold the state governors accountable.  Transparency in public finances is always a good thing

Joe
Sent from my iPhone

On 15 Jun 2016, at 3:08 PM, Mobolaji Aluko <alukome@gmail.com> wrote:

Joe Attueyi:

The terms of this new loan - or new loans - are:

1.  N50bn to be released in the first three months, where each of the 36 states would get about N1.3bn.

2,  N40bn to be released over the next nine-month period as the second tranche through the bond market, with each state expected to receive the sum of N1.1bn.

What I do NOT like about this development is the UNIFORM TREATMENT of all the states in terms of the loan - N1.3 billion each and then N1.1 billion each.  I hope that these are merely AVERAGES and not EXACT amounts, because whenever I see EQUAL AMOUNTS of monies or allocations being meted out to states in Nigeria, I know that it looks more a lazy ENTITLEMENT rather than a MEASURED NEED and, more importantly,  ABILITY to pay back.

I would like to see a table in which it could turn out that some states get half of the average stated above, and others even twice of what was stated above, based on a combination of evaluated needs and ability to pay back.

And there you have it.

PUNCH

FG secures N90bn conditional loan for states

June 15, 2016

…restricts states' borrowing from commercial banks

Ifeanyi Onuba, Abuja

The Federal Government on Tuesday announced that it had secured a N90bn conditional loan from the private sector for state governments through the issuance of bonds in the bond market.

The Minister of Finance, Mrs. Kemi Adeosun, who disclosed this during a meeting with the commissioners of finance of the 36 states of the federation, stated that the loan would be given for a one-year period.

The minister explained that the money to be released to the states was not a bailout like the one it gave out last year, but a loan that was guaranteed by the Federal Government to be provided by the private sector through bond subscription.

She said based on the agreement with the state governors and the commissioners of finance, N50bn would be released in the first three months, where each of the 36 states would get about N1.3bn.

Thereafter, she noted that N40bn would be released over a nine-month period as the second tranche through the bond market, with each state expected to receive the sum of N1.1bn.

Adeosun pointed out that the release of the funds was tied to very stringent conditions that were requested by the private sector investors.

These conditions, according to her, have been captured in a document, which she refers to as the Fiscal Sustainability Plan.

Some of the conditions are that a restriction will be placed on the states' borrowing from commercial banks; that all states must publish their financial statements, budgets and quarterly budget performance; that states' finances will no longer be shrouded in secrecy; and items like security vote, feeding and travel allowances, among others, will be made visible.

Others are that the states will review obsolete revenue laws and tariffs; and redefine Internally Generated Revenue to include non-tax revenue sources that will reflect local opportunities in each state, especially in solid minerals.

In the same vein, the states have been directed to set target limits for recurrent and capital expenditures; set target for personnel costs as percentage of the total budget; clean up their payroll by eliminating ghost workers; as well as set up Efficiency Units to reduce the cost of governance.

Adeosun said, "This is a loan that we have secured from the private sector and it has conditions attached to it. So, it's actually a loan that is going to be repaid. It's not a bailout. When you want to borrow money, the lenders set the conditions and these conditions are very stringent conditions; there are 22 of them and the states have signed up to them.

"The governors unanimously approved the plan; the commissioners approved the plan and it's going to involve a lot of work in some places. There are a lot of tough conditions. So, the governors and commissioners recognised that these reforms are necessary if they want the states to be fiscally sustainable.

"The amount of the loan is N50bn for three months to be shared among all the participating states, which are 36 so far; and then, N40bn for nine months."

She added, "The idea is to tie the states for a year so that they can balance their portfolio, which is an average of about N1.3bn for the states for the first three months; and then, N1.1bn for the next nine months.

"It's a loan and it's going to be fully repaid because it's been secured with future dividends, revenues and any amount that the Federal Government may owe the states."

When asked if the directive to the states indicated that the country now had fiscal federalism, the minister replied, "Every state must be viable. We cannot have a situation where states are so dependent on the Federation Account for their revenues and once the Federation Account is down, they cannot survive.

"We have to make sure that within each state, whatever local advantage they have is exploited. So, if there is no private sector to collect taxes from, maybe there are agricultural produce, which can be developed and the states can use that to generate revenue."

On Wed, Jun 15, 2016 at 8:37 AM, 'Joe Attueyi' via AfricanWorldForum <africanworldforum@googlegroups.com> wrote:

This is a very good development. I suspect though that most of the states will not access this facility ---due to the conditions especially the requirement to publish full details of their budget including 'security vote"

Joe
http://www.punchng.com/fg-secures-n90bn-conditional-loan-for-states/

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