State fiscal crises?

I have read a couple of articles in different newspapers about a potentially serious situation. Apparently big brother is not getting enough revenue to distribute to the states leaving the option of not distributing any funds to the state or dipping once again into the excesss crude account. The excess crude account has about $4bn left in it today compared to $20bn in 2007, and $4bn is just enough for one more dip. According to reports only 3 states, Lagos, Kano and Rivers, can survive without the allocations from the federal government.

So what exactly is the problem here? We could get to a situation where most states are completely unable to meet their obligations and even though they can somehow manage to owe civil servants their salaries for a year, they can’t do this forever.

Why do I bring this up? Well most states are set up to behave irresponsibly, because most states have very weak institutions of long term governance. Very weak house of assemblies. State governors always have the incentive to spend as much as they can as long as the day of reckoning doesn’t fall during their tenure. I don’t think I can recall a state that has ever run a surplus. I know some people subscribe to the view that governments can run deficits forever but I don’t. If you consistently spend more than you earn you are bound to run into difficulties.

It will be interesting to see how this plays out. I hope the fg plays hardball and doesn’t go dipping into the excess crude account again. They can probably only do that one more time anyway.

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