15 November 2009
editorial
Lagos — With the depleting financial base of the federal and state governments, in the face of the global economic downturn and mounting needs, exploring other sources of revenue appears inevitable.
A new development in this regard is the use of the bond market by state governments to raise funds. However, unless proper justification for its use is established, the rush by states to the bond market for funds could be abused. And that could spell doom for the future of affected states and innocent investors.
Ordinarily, attempts to raise money through the bond market are normal and are to be expected in situations that require large capital to execute development programmes and projects. We also believe in the deepening of the bond market in the country - a need we have stressed in an earlier editorial. So far, states like Lagos have demonstrated that monies so obtained could actually be put to good use. Even critics of the government agree that considering the enormity of its responsibilities the bond market was a good source for additional funding. No doubt, the concept of bonds as legitimate means of boosting the fiscal capacity of state governments, like the private sector, is not in question.
The global economic meltdown and the resultant depression of the oil market meant dwindling oil revenue for the country and a reduction in the statutory revenue allocation to the states. With the country's stock market also affected by the financial crisis and the liquidity drought in the money market, the bond market has become an inviting option.
But we have enough reasons to be worried by the desperation of some states to access the bond market. First, Nigeria's recent history is replete with governments that received loans and grants only to squander or loot them. That way, a large chunk of debts cannot even be accounted for. So, the apprehension that the present moves might go the same way is not misplaced. Also troubling is the plan by some state governments to use part of the money to service existing loans. In simple terms, it is tantamount to borrowing to settle lenders. This is unwholesome.
And considering their large share from the federation account and the current poor performance rate, we find it difficult to justify the new appetite for bonds in some states. It is therefore not strange that in some states some of their citizens have resorted to the law courts to stop their governors from borrowing from the bond market.
In theory, the role of the regulatory authorities seems adequate and should serve as guarantee. But it will not likely assuage the skepticism of Nigerians who are all too familiar with fantastic designs that often become jaundiced at the point of implementation.
The moratorium of this bond also poses another challenge. At maturity, the present administration in states, even if given a second term, will not be in power. And in a country where continuity in governance is uncertain, convincing the public to invest that way could be difficult, even though bonds are very secure investment instruments.
Therefore, to ensure that accountability and sanity prevail in these transactions, the relevant regulatory agencies, and indeed citizens of the states heading to the bond market should thoroughly investigate the intentions of the states and, if approved, closely monitor the spending of such funds.
Also, rather than rushing to the bond market, we believe the current situation calls for the states to mount an effective internal revenue generation drive. It is for this reason that we commend the Governors Forum's First National Round-Table on Internally Generated Revenue, taking place in Abuja today, with the theme "Surviving the Downturn: Refocusing on Internally Generated Revenue."
One thing is sure here: For the states to convince their citizens to pay tax, there must be evidence of good performance by the Governors.
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