Following the intervention by President Muhammadu Buhari in the indebtedness of some state governments to their workers, a financial expert, Mr. Johnson Chukwu has called for an institutional perspective towards forestalling the re-ocurrence of the trend in future.
It would be recalled that President Muhammadu Buhari on Monday approved a comprehensive three-pronged relief package to the distressed states to enable them meet their obligations to their workers.
Speaking in an interview with Primetime Reporters in Lagos, Chukwu stated that the institutional perspective would amount to the President sending an amendment to the Fiscal Responsibility Act such that it would impose a limit to the percentage of recurrent expenditure that a state could incur relative to its internally generated revenue.
“And my take is that the Fiscal Responsibility Act should impose a maximum limit of hundred percent with the ration of the recurrent expenditure to the internally generated revenue so that each state can become financially autonomous and not depend on the Federation Account or the government can actually define a transition period because we are in a bad situation.
“So, you could say in a period of five years. In those five years, a maximum cap of recurrent expenditure should cap to highest, one hundred percent. So, in that case you are saying that the fifty percent will be funded from the allocation, that leaves fifty percent to meet other areas, may be building infrastructure or servicing any other obligation.
“But ultimately, in five years time, no state should have a recurrent expenditure that is higher than a hundred percent of its internally generated revenue. This will encourage states to begin to manage their finances more efficiently; the states will cut to size their overhead in line with their internally generated revenue. It will make it possible for the states to say, look, we are not financially viable, we merge with the neighbouring states. We should allow for that to happen. But I can also assure you that every state will struggle to be financially viable”, he said.
Chukwu who is also the Managing Director of Cowry Asset Management also averred that with this development, the states would be more creative in generating their revenue adding that beyond that, the states would now use allocations that would be coming to them more judiciously in building infrastructure so that those infrastructure would increase revenue, create employment and the begin to increase their internally generated revenue.
According to him,” The standard practice elsewhere in the world is that the government build infrastructure to trigger the private sector to set up businesses in that locations so that as the private sector grows, employment will be created, their citizens engaged by the private sector will earn salaries which the government tax and eventually recover the cost of building the infrastructure.
“Here, at the government level, the states build infrastructure as a form of political patronage. So, the government does not have the compelling need that will catalyze economic development. But if they have enough IGR, they will have enough funds to encourage employment and to encourage increase in taxes”.
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