News Detail Welcome Address By The Honourable Minister Of State For Finance, Remi Babalola At The Monthly Meeting Of The Federation Accounts Allocation Committee Held At The Sheraton Hotels And Towers, Abuja On Friday, 18th January 2008 ISSUES AND KEY CHALLENGES BEFORE FAAC PROTOCOL I welcome you all to this first Federation Accounts Allocation Committee (FAAC) meeting in the Year 2008. I wish to place on record that FAAC has turned out to be a veritable sounding board for policy matters in our great country through your contributions. For this, I thank you most immensely. 2. Given our recent experience in Fiscal Federalism, I am happy to inform you that there has been significant improvement in the relationship between all tiers of government, especially between the Federal and State governments. For instance, I am aware that at least 13 States in the Federation have passed their own versions of the Fiscal Responsibility Act. This is commendable and I enjoin other states in the process of passing theirs to do so. 3. There are a number of other issues begging for attention that require immediate resolution. The purpose of this address is therefore to discuss some of these issues. Review of Indices by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) 4. Section 6 (b) of the RMAFC Act empowers the RMAFC “review from time to time, the revenue allocation formula and principles in operation to ensure conformity with changing realities”; while Section 6 (e) goes further to also empower the RMAFC “to make recommendations and submit its findings by a report thereto to the Government of the Federation or of the States, as the case may be, regarding the formula for the distribution of the Federation Accounts and the Local Government Accounts”. 5. Pursuant to the discharge of its statutory duty highlighted, during the October, 2007 FAAC meeting, the RMAFC indicated its intention to issue new indices for horizontal distribution and submitted same in November 2007 to the Office of the Accountant General of the Federation (OAGF), but they are yet to be implemented, largely because at the October 2007 meeting, we agreed that the implementation will not be effected until States were sensitised and the representative of RMAFC agreed that the sensitisation exercise should take place before the implementation of the new indices. 6. Also, in line with the need to inform Government about these changes as required by S 6 (e) of the RMAFC Act cited above, I have written the President and Commander-in-Chief of the Armed Forces to intimate His Excellency about the situation and efforts being made to implement the new indices. Hence, towards the successful implementation of the new indices, I have set up a Committee comprising representatives of the Ministry of Finance, Accountant General of the Federation, National Planning Commission and Revenue Mobilisation Allocation and Fiscal Commission to look at the new indices to ensure equity, fairness and due process before implementation. The Committee has a month to submit its report. Completeness of Revenue Rendered to the Federation Account by the Various Agencies. 7. In recent times, there have been lots of discussions at our meetings and also media speculations regarding the completeness of the revenue being contributed to the Federation Account by the Nigeria Customs Service (NCS), the Nigerian National Petroleum Corporation (NNPC), Directorate of Petroleum Resources (DPR) and the Federal Inland Revenue Service (FIRS). For the purpose of ensuring the credibility, authenticity and integrity of revenue contributed to the Federation Account, FAAC has set up a Post-Mortem Sub-Committee to post-review completeness of inflows into the Federation Account. 8. The Sub-Committee’s report for November 2007 indicated that there were discrepancies between reported earnings and actual contributions to the Federation Account in respect of NNPC, FIRS and DPR. We are yet to resolve the outstanding issues. The Sub-Committee is hereby charged with the responsibility of clearing these issues within the next two weeks. Failure to do this may necessitate seeking advice of the Auditor-General and the Presidency on these issues. Issuance of Irrevocable Standing Payment Orders (ISPOs) by States 9. The Federal Government is becoming increasingly worried at the rate at which sates are issuing Irrevocable Standing Payment Orders (ISPOs) to financial institutions in the course of obtaining facilities. While government is not averse to States executing their financial programmes and budgets in line with the statutory regulations, there is need for caution to ensure debt sustainability and prudence in financial management. Furthermore, borrowings by State governments should be in line with the Debt Management Office’s (DMO) concessionary guidelines and be for viable, self sustaining development projects that will directly or indirectly generate the cashflow necessary to service the debt. States are further enjoined to support the Federal Government in ensuring prudent macroeconomic management. 10. On our part, we will continue to address weaknesses in the regulatory system for borrowing by States; set maximum exposure to individual lenders; set limits on maximum debt service ratios; exercise discretion in issuing Federal Government guarantees required for foreign loans; and encourage risk ratings for State Governments. Payment of Statutory Allocations in Foreign Exchange 11. We are aware of the recent pronouncement by the Central Bank of Nigeria (CBN) regarding the proposal to pay states from the Federation Account in dollars. At the moment, the CBN fully monetises the foreign currency receipts in the Federation Account to be shared among the three tiers of government. Under the new proposed policy, States are expected to open Special Domiciliary Accounts with banks of their choice, into which their allocations will be remitted. 12. Thereafter, States would be free to monetise these balances into Naira for local use at the ruling inter-bank rate. They may also utilise part of these to meet external obligations like opening letters of credit. With this proposed policy, the CBN hopes to further deepen the forex market, promote financial market development and further assist financial institutions manage our external reserves more effectively and efficiently. 13. We will engage the CBN to work out modalities for the effective implementation of this proposed policy. At the same time, we will ensure that the States build the necessary capacity to manage the new system. The proposed policy will not be implemented this month, until full engagement has been carried out and proper directives have been received from the Presidency. However, in the process of realigning the nation’s fiscal and monetary policies, I wish to assure all of us here that the growth and stability of the nation’s economy will be of paramount consideration. Concluding Remarks 14. Ladies and Gentlemen, as financial managers in our various constituencies, we have a critical role to play in ensuring that resources are effectively and efficiently utilised for the wellbeing of our people. Let me stress once again the total commitment of this administration to constitutionalism, fair play and due process in the management of the nation’s affairs. 15. As we commence our deliberations, I thank you all for listening. Remi Babalola Honourable Minister of State for Finance This speech was presented on 18/01/2008