Trouble brews between states, FG over debt deductions

A silent trouble is brewing between states and the Federal Government over excess deductions from allocations to the states over the 2005 debt forgiveness by the London and Paris club creditors.

In the deal struck between the Federal Government and the two groups of creditors on behalf of the Federation then, $6 billion was paid on arrears of debt, another $6 billion was paid as a discount while $30 million was paid to the Central Bank of Nigeria as commission.

For this, the Paris Club forfeited $18 billion. In the case of London Club, Nigeria paid Par Bond of $1.486, Promissory Notes of $512 million, oil warrants of $82 million and 0.5 commission to CBN.

After the payment and forgiveness however, Federal Government compiled the portion of each of the states and Federal Capital Territory (FCT) and commenced a monthly deduction at source from their federation account allocation.

Following a downturn in the economy, some of the states then realised that much more than their portion of the $12 billion had been deducted from their accounts and then commenced a subtle pressure on Abuja to refund the excess.

Sources close to Nigerian Governors’ Forum and Federation Accounts Allocation Committee (FAAC) told Nigerian Tribune that the issue had dominated deliberations of both bodies for many months.

FAAC comprises Minister of Finance, Kemi Adeosun, commissioners for finance, accountants general of the federation and states and representatives of revenue generating agencies as well as Revenue Mobilisation Allocation and Fiscal Commission (RMAFC).

On May 31, 2016, Chairman of the Governors’ Forum and Governor of Zamfara State, Abdul’aziz Yari, forwarded a letter to President Muhammadu Buhari, copying Vice President Yemi Oshinbajo and the Debt Management Office (DMO) as agreed at the meeting of National Economic Council (NEC).

A committee on Over Deduction of Foreign Loan Obligations from States on the Paris Club and London Club debts was then set up, which submitted a report recommending that it was appropriate to consider states’ requests for the refund of claimed over deductions.

In addition, DMO had written a letter to all state governors and FCT minister claiming over deduction to immediately submit applications for refund attaching all relevant documents in support of the claims to the office of the Minister of Finance with a copy to the Debt Management Office (DMO) for appropriate action.

Part of the letter, which was obtained by the Nigerian Tribune reads “upon receipt of the claims, the DMO in collaboration with the Federal Ministry of Finance and the Office of the Accountant General of the Federation will conduct an assessment, validation and reconstruction of the historic debt data of the claiming states, using evidence submitted by the state to match the data available in the DMO’s system, and advise Mr. President on the outcome for his further directives.

“In order to bring the phenomenon of such continuous claims to a closure, all states that have substantiated claims are requested to submit the applications for refund and supporting documents not later than August 31, 2016.”

It would be recalled that following the payment of the about $15 billion between 2005 and 2007, total external debts of the Federation was reduced to $3.54 billion owed only to multilateral agencies.

By December 2015 however, external debt had climbed back to $10.71 billion with Federal Government accounting for $7.348 while states and FCT were owing $3.369 billion

By the same date, Federal Government owed local creditors N8.84 trillion while states owed N1.65 trillion.