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Pulse Explainer: Here’s what the new Local Government financial directive actually means

By Jude Egbas

This is what the new directive on local government allocation actually means.

Nigeria claims to run a federation.

In a federation, the federating units should ideally maintain a semblance of autonomy on certain matters, including on finances, policing, environmental protection, road maintenance and traffic management, among others.

However, Nigeria observes the ‘federation principle’ in the breach most of the time. The federal government controls almost every facet of the nation’s life, state governments receive what belongs to the local governments and sometimes, local governments are left with nothing for developmental projects.

So much power is concentrated in the center that the other units are often left grumbling.

Which brings us to something called Financial Autonomy.

What is financial autonomy in a federation?

In a federation, the three tiers of government, namely—local, state and federal—should have some degree of financial autonomy.

Which means states should have no business with the coffers of the local governments and the federal government should have nothing to do with how states allocate their resources for developmental or infrastructural projects.

Financial autonomy is at the core of a federal system of government, allowing the federating units to remain financially independent from the other, while remaining interdependent on matters as the constitution may so state.

Have states been practising financial autonomy?

Not at all.

All you need do is engage your local government chairman or councilors in a conversation on fiscal federalism and hear them lament how governors take all the monies meant for them from Abuja and sometimes, hand them a pittance or the “crumbs falling off the master’s table”.

Nigeria’s revenue sharing formula is as follows: every month, the federal government takes the lion’s share of 52.68 per cent from the federation account. The 36 states take 26.72 per cent, while the balance of 20.60 per cent is handed to the 774 local governments in the country.

Sometimes, the local governments don’t get to receive their 20.60 percent. State governors seize this percentage and if local governments are lucky, they get a fraction as decided by the all-powerful state governors.

Hundreds of local government chairmen would always tell you that the reason why they haven’t been able to unclog that overflowing drainage down the street, light up the dark alley in the hood, patch the pot-hole that has damaged many cars and caused accidents or even pay teachers, is because they have no money to do any of these things.

All of which has essentially killed the local government as a third tier of government through the years.

State governors would tell you that the local government chairmen misappropriate the funds, which is why their share is withheld. But does that mean state governors are better managers of money and that they do not steal public funds?

You know the answer.

So, what has the NFIU just done?

Effective from June 1, 2019, local governments won’t have state governments tampering with their allocations, according to the Nigerian Financial Intelligence Unit (NFIU).

The NFIU has banned banks, governors, financial institutions, public officers and other stakeholders from tampering with the statutory allocations of local governments beginning from next month.

According to the NFIU, “having realized through analysis that cash withdrawal and transactions of the State, Joint Local Government Accounts (SJLGA), poses biggest corruption, money laundering and security threats at the grassroots levels and to the entire financial system and the country as a whole, decided to uphold the full provisions of section 162 (6) (8)of the 1999 Nigerian Constitution as amended which designated state Joint Local Government Account into which shall be paid allocations to the local government councils of the state from the federation account and from the government of the state.

“The amount standing to the credit of local government councils of a state shall be distributed among the local government councils of that state and not for other purposes”.

The NFIU has also warned banks to adhere strictly to the directive or face sanction.

The NFIU adds that “In addition, a provision is also made to the effect that there shall be no cash withdrawal from any local government for a cumulative amount exceeding N500,000:00 per day. Any other transaction must be done through valid cheques or electronic funds transfer.


“The complete guidelines have been released to the Governor of the Central Bank of Nigeria, the Chairman, Economic, and Financial Crimes Commission (EFCC), the Chairman, Independent Corrupt Practices Commission (ICPC) and Chief Executive Officers of all Banks and other financial institutions. 

“Any state government that is willing to seek any expert economic advice in the unlikely event of these guidelines constituting an inconvenience to the management of the state can work with the NFIU and/or CBN.”

Do not rejoice, this would end up in court

However, expect the governors to challenge this directive in court because the NFIU isn’t bestowed with the powers to do what it just did, stricto senso.

This directive may or may not stand, depending on the outcome of what promises to be long drawn litigation processes across the states.

The constitution allows governors to receive monies from the center on behalf of the local governments and to decide what is disbursed to local governments thereafter.

But hey, this is still a first step kick-started by the NFIU and having a rigorous conversation on this in the days ahead, won’t hurt anyone. And besides, legal interpretations can be as varied as they come.

Hopefully, your local government chairman is handed the money he needs to seal that pothole, evacuate the waste clogging drainage channels and keep your street secure with better lighting, if the verdict miraculously sways the NFIU’s way at the end of the day.

Culled: Pulse


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