Government Bailout of Distressed States in Nigeria: An Analysis of the 2015 Fiscal Crisis

Recent developments in the global economy, particularly in the year 2015, grossly affected developing countries. Examples of which include the happenings in the crude oil market, where the Organization of Petroleum Exporting Countries (OPEC) was unable to reach an agreement amongst its member countries, while Non-OPEC producers, such as the US, were not prepared to cut down on production, Iran’s nuclear deal, amongst others. The overall effect has been negative as indicated by the performance of most developing economies, which rely heavily on crude oil. The Nigerian economy is one of such economies affected by these developments. State governments became unable to pay salary and pension arrears alongside huge debts and falling internally generated revenue, hence the call for a bailout. This study is a step in that direction. It sought to answer the question of whether the bailout reward inefficiency and/or depleted the federal government revenue base without any potential benefits; if it followed any specific principle of public policy in Nigeria or not; and how far the bailout package helped resolve the state fiscal crisis and to what extent have the state governments enlarge their internal revenue base. Also, whether the bailout fund was an economic policy aimed at having real social welfare effects or a means for seeking a political alliance with opposing state governments as well as strengthening internal bond within the ruling party? This study is a descriptive analysis of secondary data on the fiscal stance of Nigeria. It considered states affected by the fiscal crisis, their debt profile and levels of IGR for the periods 2014 to 2015, as well as the amount of bailout applied for, amount of debt restructured, and amount of bailout finally approved and paid by the Federal Government. The data are sourced from the CBN official website, monthly economic reports, the Ministry of Finance, Office of the Accountant-General of the Federation, National Bureau of Statistics and Debt Management Office (DMO) Official. The analysis is predominantly qualitative and not quantitative and uses secondary data. The researcher computed the fiscal sustainability index of each state as an indicative policy basis for disbursement of the bailout fund. Based on the sustainability index, the interpolation of financial data of government revenue revealed that a gap between revenue and expenditure should not be immediately fed by debt, especially where there are other sources of revenue available to state governments. Hence, when a state is still fiscally sustainable, an option of debt is not practicable. The study, therefore, raised several bailout policy issues. This is because ethically, problem-solving via bailout funds may be costlier than estimated benefits. Therefore, politicking for a bailout-free economic structure at least for most states if not all the state governments in Nigeria is researchable. Such an economic structure is challenging to economic policymakers since incentives differ amongst economic actors and trussing consequences to actions amongst these actors become difficult. In certain instances, the best thing to do is to be critical about existing regulations; but in other cases, it may be to make the policy guide less stringent to clearly allow agents bear the consequences of their actions.

In a tight fiscal posture, there is a need to understand the relationships among levels of government. According to Richard (1959), when considering the division of governmental functions and financial relations among levels of government in the context of fiscal federalism, it is important to highlight the capacity of each levels of government in terms of their fiscal responsibility. Economic stability and just distribution of income can thus be done by the federal government because of its flexibility in dealing with these problems. Also, because states and localities are not equal in their income, federal government intervention is needed. This is because the welfare of the citizenry becomes important when state failure looms and salary and pension arrears especially are not paid.
Furthermore, if resources are well disbursed to the lower levels of government, then it is expected that these lower level governments are responsible and fulfill their obligations as at when due. As opined by Oates, 1999, "understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government" is what fiscal federalism entails. Thus, when responsibilities are decentralized among levels or tiers of government, certain benefits are anticipated, such as handling regional and local differences; lower planning and administrative costs; competition among local governments which include the citizens so as to encourage political innovations among others.
Despite these benefits however, a weak system of fiscal federalism can suffer from the use of unskilled public officers by state and local governments; migration of citizens from regions with bad fiscal system to regions with good fiscal system (as is the case of Lagos state, Rivers state among others in Nigeria). Other effects are lack of unaccountability of state and local governments to constituents; desire for complete independence of the local governments from the national government. These disadvantages arise from an improperly managed fiscal federal system and therefore require that lower level governments be assisted or 'bailed-out' in times of financial crisis or financial distress.
A bailout otherwise known as financial rescue generally involves an intervention by a person or company to help another person or company out of financial difficulties. It can be described as an informal term for extending the arm of support in the form of a financial assistance to a company or a country or a lower level government, which is challenged by financial difficulty or even bankruptcy 1 . A bailout can, but does not necessarily, avoid an insolvency process.
A government bailout usually involves the government paying or lending money to save a company or industry from failing. For example, the 2008 bailout of the failing auto industry in the United States involved a large corporation that is pivotal to the wellbeing of her economy. For such big corporations, the central bank calculates the impact on the economy, because if such a big industry goes out of business then thousands of people will lose their jobs and the implications of that will be huge on the economy. So if the federal government thinks that by helping the states with salary intervention fund can make it come out a fiscal crisis then may be it is better for the government to support these states.
However, the bone of contention hovers around how effectively the different tiers of government use their existing resources to perform their expected functions and how much bailout is necessary in a time of financial distress as well as, the guarantee that once they are bailed-out, they would be completely free from distress. This enquiry is important from the standpoint of the reasons that have been identified as the core causes of fiscal distress. This thus necessitates a central government bailout, in which financial assistance by the government is provided to the states that appeared to be on the brink of collapse. The belief is that without this aid, the fiscal crisis would create rippling effects throughout the economy.
The main objective of this study is to investigate government bailout of distressed states in Nigeria in light of the 2015 fiscal crisis. The specific objectives to be achieved out of this study include to: i. examine and compare the nature, trends, and bases of bailout in Nigeria and some selected countries; ii.
analyze the effects of state bailout on sectoral and aggregate economic performance in Nigeria; iii. discuss ways through which Nigeria can use bailouts to enhance better management of the risks induced by the fiscal crisis; iv.
analyze the bailout fund as an economic policy that is aimed at having real social welfare effects.
This study answers the following research questions: i. did the bailout reward inefficiency and/or depleted the federal government revenue base without any potential benefits? ii. did the recent (2015) bailout follow any specific principle of public policy in Nigeria or not? iii.
how far did the bailout package help resolve the state fiscal crisis and to what extent have the state governments enlarge their internal revenue base? iv.
Was the bailout fund an economic policy aimed at having real social welfare effects or a means for seeking political alliance with opposing state governments as well as strengthening internal bond in the ruling party?
As at the time of this study, literatures on government bailout policy have attracted very bantam attention of economists, of which most of the studies conducted are outside Nigeria and even Africa. Some of these studies have been on bank bailout and the financial crisis of 2007/2008. Previous studies also produced divergent views as to the relevant approach to bailout a distressed institution. This study therefore harmonizes the precious ideas and looks into the state fiscal crisis that occurred in Nigeria in 2015, noting the conditions given for the bailout, the risks involved if the federal government had failed to act, among other issues. This research documents the need for a bailout fund in a time of fiscal crisis with possible acceptable reasons. It also establishes the implications of a bailout fund on the fiscal behaviour of government executives, especially during a time of economic downturn preceding the crisis. As it is the case with private institution, the research identifies possibilities of moral hazard effects, political consequences as well as procedural underpinnings of a bailout.
Most of the scholarly documentations on bailout are either on private institutions and are mostly outside Africa, for example, the case of Detroit in 2012 and Dutch Local Government crisis in 2013. This study considers the states caught in the web of the fiscal crisis, their debt profile and levels of IGR for the periods 2013 to 2015, as well as the amount of bailout applied for and approved by the Federal Government. This helps the author to comprehend the economic and political effects of the bailout funds and the post-bailout experience of the states. The analysis is predominantly qualitative and not quantitative and focuses on description of secondary data from the CBN and other institutions such as the Ministry of Finance and Debt Management Office (DMO).
This study is organized into five chapters. The first chapter introduces what is to be discussed and gives a concise overview of the subject matter. It includes the statement of the problem, objectives of the study, research questions, justification for the study, and the research scope. Chapter two of the work focuses on the fiscal crisis in Nigeria, and the individual states involved. The chapter also reviews the facts of the fiscal crisis, the nature and causes of the current fiscal crisis including the terms and conditions under which the bailout funds are being disbursed to affected states. The third chapter presents the review of relevant literature which includes the review of the theoretical framework (the too-big-to-fail theory) and applications relating to two main cases. The fourth chapter contains an analysis of the Nigerian bailout, the economic as well as the political effects of bailout in Nigeria, and a discussion on whether bailout is appropriate in Nigeria. Chapter five gives a summary of findings, lessons for policy and an agenda for further research.

Bailout Programmes in Nigeria: 2008 Economic Stimulus Package
Bailout is not a common feature in Nigeria's Fiscal management. The Nigerian economy is not an exception in the adverse effects that struck nations of the world during the global financial crisis. Also, there are times of intermittent fiscal imbalances that affected certain sectors of the economy. Hence, a comprehensive fiscal programme including but not limited to bailout is required to minimize the hardship. Nigeria's stimulus package was not as strong as those undertaken elsewhere, but like other economies shrunken by the adverse effects of the global economic meltdown in 2008; the Federal Government initiated a fiscal stimulus to contain the obvious slowdown of the economic growth (Cobbinah & Okpalaobieri, 2010).
Consequent to the above, the government disbursed ₦200.0 billion to deposit money banks under the Commercial Agricultural Credit Scheme; continued the lower tariffs regime under the '2008-2012 Nigeria Customs and Tariff Book' to encourage the importation of raw materials to stimulate domestic industrial production and manufacturing activities; earmarking of ₦361.2 billion for investment in critical infrastructure; and also injected about ₦100.0 billion multilateral loan in critical sectors of the economy.
The fiscal stimulus countered the effects of the global crisis and curtailed the deceleration of Nigeria's economic growth. Nigeria's economic stimulus package was declared but was primarily being provided in a form of economic assistance and foreign direct investments to ailing sectors of the Nigerian economy. In recent times, Nigeria has received an economic stimulus package, which is worth $1.87 billion from World Bank as FDIs. A significant Electronic copy available at: https://ssrn.com/abstract=3342552 amount of economic stimulus package to Nigeria, amounting to $5.2 billion, was being spent mostly in finance and energy sectors. Fossil fuel or oil is Nigeria's main export revenue earner. Out of total revenue earned from oil exports by Nigeria, 80% is spent by Nigerian government, 16% is spent on operational costs, and 4% go to investors.
Certain programmes were also initiated in form of an economic stimulus package. One of which is the National Economic Empowerment Development Strategy (NEEDS). Liberalization, deregulation, privatization and stability were primary concerns of the Nigerian economic stimulus package. The NEEDS programme focused on developing infrastructural facilities like the setting up of adequate power supply facilities, supply of drinking water, and provision of irrigation facilities (which is however still a mirage as of today). Other intervention strategies included the State Economic Empowerment Development Strategy (SEEDS), the National Millennium Goals programme which was sponsored by the United Nations among others.

The 2015 Fiscal Crisis
The fiscal crisis commenced as early as 2014 when some states began to owe their civil servants as much as 14 months' salary arrears and also became incapacitated to service their debts, which led to the application for bailout. The content of the bailout deal was agreed upon by the National Economic Council led by the Vice President Yemi Osinbajo, the chief executive officers of the banks and the CBN management. 27 states applied for the bailout package, but three (3) states had not drawn from the bailout fund. However, by September 18, 2015, 20 out of the 27 states that applied for the bailout to offset their salary arrears had received over N222bn. The payment of the bailout fund was kept in custody of Deposit Money Banks in Nigeria, who have paid N311.41bn to 24 states of the federation out of the N338bn bailout fund approved by President Muhammadu Buhari as at October 2015 (CBN, 2015).
The bailout is considered to be a loan, repayable at an interest rate of nine per cent over a 20-year period and is shown in figure 1 to 3. According to the Federal Government, the bailout package is expected to be solely for the purpose of paying the backlog of salaries and the approval of this special intervention fund was sequel to the decision by the National Economic Council at its meeting of June 29, 2015. The conditions for accessing the facility include resolutions of the respective state executive councils authorizing the borrowing and the state houses of assembly consenting to the loans, as well as issuance of Irrevocable Standing Payment Orders to ensure timely repayment at source from the states' Federation Account allocations. Figure 1 shows the amount originally applied for by each of the distressed state, before the restructuring occurred. Osun state has the highest amount of bailout fund applied for at N123.59billion, while Kebbi state applied for the least which is N690million.   Kebbi state has the least amount applied for, to the tune of N690million followed by Adamawa and Edo with N2.378billion and N3.167billion respectively. There are 19 Northern states and 17 southern states in Nigeria. 14 out of 19 Northern states and 13 out of 17 southern states applied for the bailout. The political structure of the states cannot be undermined. 18 APC (All Progressive Congress) states applied for the bailout, while 9 PDP (People's Democratic Party) states applied.

Nature and Causes of the Fiscal Crisis
The fiscal crisis in Nigeria is not unconnected from global happenings in the world today as discussed in section 1 of this study, especially in the increased supply of crude oil to the global oil market, leading to a fall in the global price per barrel of crude oil. However, in a world where revenues perfectly match expenditures there would be no need for borrowing or saving in order to maintain government spending obligations over time. Unfortunately, governments at all levels routinely face a mismatch between inflows and outflows, and thus must confront the question of how to manage budget surpluses and deficits. It is in the light of this that Nigerian states have alleged the fiscal crisis to challenges from global happenings in the dwindling oil revenue of the government. This has thus, caused structural changes in the fiscal landscape of Nigeria over the past few months and has caused fluctuations in both revenues and expenditures over the business cycle of the economy.
Numerous factors are no doubt at work in a financial crisis such as those which affects state governments, but one key emphasis is on the reliance of the states on the revenue shared to them by the federal government. This is because another source of revenue to the state government is their Internally Generated revenue (IGR) of which some states have led poor internally generated revenue (IGR) rendition list since June 2014. Poor revenue generation by states could not help them meet up their financial obligations, hence the need to borrow. These continued and led to a call for bailout by states governments who had later become highly indebted. It is important for state governors to seek ways in which they can increase their IGR as a means to service their debts, since this problem compounded their inability to meet their statutory obligations, even as majority of them now have a yearly IGR base below their capacity.
In June 2015, the sub-national debt profile was estimated at $3.3 billion and this did not include domestic debt stock. Alongside this fact, only 24 states had compiled their records and thus complied with the IGR rendition stipulated by the authorities at the National Bureau of Statistics (NBS). State government battled with debt and made consistent flop of their IGR rendition. This made them call for a bailout from the Federal Government to avert consequent economic distortions and growth challenges. This is because there were expectations about negative consequences on the overall economy and not just the states affected, making the Gross Domestic Product (GDP) of the 12 states owing salaries account for 33.9 per cent of Nigeria's GDP.  Abia, since 2013; while nine others did not report as at June 2015. One would be puzzled, where did their IGR go to? Inability of these states to be consistent in revenue generation and meeting of their statutory responsibilities which may be due to many state projects they had embarked upon has adverse consequences on the people. There was prolonged non-payment of salaries, which reduced the financial capacity of households and their consumption. Simple economics however expects that when consumption expenditure fails, there would be a negative effect on Consumer and Industrial Goods sectors which is about 56.3 per cent to market capitalization in Nigeria.
Also, in 2014, 17 state governments had an average IGR above N10billion in 2014 and is shown in figure 5 with Lagos state having the highest with N276.16billion   figure 6 with Lagos state having the highest with N268.22billion which is lower than N276.16billion generated in 2014.
Electronic copy available at: https://ssrn.com/abstract=3342552 Unlike the Federal Government who has the capacity to borrow more freely from the capital market in order to meet its recurrent expenditure (especially during a global crisis) as is the case in 2015 where approximately 90percent of the Federal Government's expenditure was recurrent (CBN April 2015 Economic Report), the state and local governments do not have such autonomy to fulfill their fiscal obligation. These lower level governments therefore bare high debt burden, having been constrained by inability to access the capital market to raise more funds, thereby wallowing in a fiscal crisis alongside their weak capacity to generate revenue internally.
It should be noted, however that not all the state governments in Nigeria were caught up in the 2015 Fiscal Crisis web. This means that certain internal abnormalities existed within the affected states. The possible causes include poor book-keeping, negligence on the part of the state governing bodies and issues of transparency in the management of public finance, which have great implications for any socio-economic development and overdependency on the central government. On the other hand, the state governors claimed that the fiscal crisis eventually started owing to oil thefts, slump in global oil prices, which reduced their monthly allocation and reduced their revenue. Governors of the affected states have also claimed that as at July 2013, when the June allocation for that year was paid, states lost suddenly, 40 per cent of statutory allocation from the Federation Account due to a very questionable claim of 400,000 barrels of crude oil theft daily.
Despite claims made by these governors about the activities in the global oil industry, Nigerians still react to the need for a bailout for any state government. There is the aspect of increasing debt profile attributed to mismanagement of funds by the state governors and the declining federal allocation, which makes it reasonable to fault the need for the Federal Government bailout for states. Conditions for the bailout should call for a thorough audit of state governments before it can be done so as to investigate fiscal irresponsibility, lack of transparency and planning, and unbridled mismanagement of resources at the lower level of governance. State government budgets should thus provide a guide to the management of state resources and should be made available to the public.

Loan Restructuring and Conditions for Bailout
According to the Debt Management Office (DMO), the government has attached high priority to addressing the fiscal imbalance faced by most states of the Federation. Since there was a structural fall in the international price of crude oil by over 43%, revenue allocation to states also dropped by about 40%. States became unable to meet up with their fiscal responsibilities, hence the need for a prompt response by the Federal Government. As a salutary option for short-term fiscal stabilization, DMO proposed a restructuring of loans to state governments into a Federal Government of Nigeria (FGN) bond. This is expected to reduce the debt-service outflow and thus help states meet up with outstanding payments of salaries and pensions to workers.
In order for states to access the bailout fund, states were expected to apply. As at the time of this research, twentythree (23) states had requested for the restructuring of bank loans to FGN bond, which was done in two phases. Eleven (11) states made the first phase, given that they had submitted the necessary and duly completed documentations, alongside their approved bank balances as at August 14, 2015. Thus, their bank loans were restructured into a 20-year GGN bonds which became effective August 17, 2015. The remaining twelve (12) states were involved in the second phase and their loans were restructured and effective from September 16, 2015.
The banks involved in Phase were fourteen and their total loans to the eleven States which were restructured amounted to N322.788 billion. Twelve banks were involved in Phase II of the restructuring operation and the total loans restructured for the twelve States amounted to N252.728 billion bringing the total restructured amount for the twenty-three States to N575.516 billion. Some banks featured in both phases, but the total number of banks involved was 15. The restructuring was operative using a re-opening of the FGN Bond issued on July 18, 2014 and maturing on July 18, 2034. The pricing was based on the yield to date of the bond at a 30-day average, resulting in a transaction yield of 14.83%." Indicators of the impact of the debt management operations included a monthly debt service burden which has dropped by a minimum of 55% and a maximum of 97%, among the twenty-three States; and also an interest rate savings for the twenty three States ranges from 3% to 9% p.a. (DMO, 2015).
The debt restructuring will improve the balance sheet of the banks involved. This is because the loan assets of subnational government which are weak would be replaced with FGN bonds which are high quality sovereign assets. These bonds are traded on the secondary market and could benefit other sectors of the economy when traded, since bank loans are now made available to private firms. The debt service burden of states will also reduce, and this will help achieve fiscal balance by states. In summary, the commercial loan-to-FGN Bond plan was one of the helpful options for short-term fiscal stabilization, which was put forward by the DMO to reduce the debt-service outflow of states and free resources for them to meet other obligations, particularly clearance of arrears of salaries and pensions.

Too-Big-To-Fail (TBTF) Theory
The theoretical foundation to the study is based on the too-big-to-fail theory, propounded by Stewart McKinney in 1984. By description, the "too big to fail" theory asserts that certain corporations, and particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and that they therefore must be supported by government when they face potential failure. 3 The too big to fail may refer not only to the scale of the activity of the specific financial institution. It also takes into consideration both the public and economic aspects of the whole economy. State aid is nothing but taxpayers' money. When the state decides to rescue a bank, it is de facto weighing the social and economic consequences of such an action. In the case of the too big to fail dilemma, it might be more profitable to invest public resources in saving the institution than to allow it to fail. Big failures can even lead to riots. They diminish the reputation of the state and weaken the economy. The consolidation and globalization processes were bringing a lot of benefits of scale for the financial sector institutions. The profitability advantage was additionally strengthened by the arguments that this process is risk-lowering.
Proponents of this theory also believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks. 4 Some economists such as Paul Krugman hold that economies of scale in banks and in other businesses are worth preserving, so long as they are well regulated in proportion to their economic clout, and therefore that "too big to fail" status can be acceptable. The global economic system must also deal with sovereign states being too big to fail. 56

Criticism of the theory
Opponents believe that one of the problems that arise is moral hazard whereby a company that benefits from these protective policies will seek to profit by it, deliberately taking positions that are high-risk high-return, as they are able to leverage these risks based on the policy preference they receive. 7 The term has emerged as prominent in public discourse since the 2007-08 global financial crises. 8 Critics see the policy as counterproductive and those large banks or other institutions should be left to fail if their risk management is not effective. 9 Some critics, such as Alan Greenspan, believe that such large organisations should be deliberately broken up: "If they're too big to fail, they're too big". 10 More than fifty prominent economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions. 11 Bernanke 12 cited several risks with too-big-to-fail institutions: i. These firms generate severe moral hazard: "If creditors believe that an institution will not be allowed to fail, they will not demand as much compensation for risks as they otherwise would, thus weakening market discipline; nor will they invest as many resources in monitoring the firm's risk-taking. This is quite applicable to many levels of government in Nigeria. When they are assured of the intervention of the central government, they flaw on expected levels of fiscal discipline which encourages unsound investments and expenditure patterns with low revenue generation to match. As a result, too-big-to-fail firms will tend to take more risk than desirable, in the expectation that they will receive assistance if their bets go bad." This can be asserted to be the case for the distressed states in Nigeria ii.
It creates an uneven playing field between big and small firms. "This unfair competition, together with the incentive to grow that too-big-to-fail provides, increases risk and artificially raises the market share of too-bigto-fail firms, to the detriment of economic efficiency as well as financial stability." This demonstrates in the case of Nigeria therefore that the states are no more working hard as they should due to their expectations from the federal government. Thus, what should the other states think? Desire to fail in order to participate in bailout funds? iii.
The firms themselves become major risks to overall financial stability, particularly in the absence of adequate resolution tools. Bernanke wrote: "The failure of Lehman Brothers and the near-failure of several other large, complex firms significantly worsened the crisis and the recession by disrupting financial markets, impeding credit flows, inducing sharp declines in asset prices, and hurting confidence. The failures of smaller, less interconnected firms, though certainly of significant concern, have not had substantial effects on the stability of the financial system as a whole." If about three (3) states failed with the exclusion of Lagos, Rivers and Kano, maybe the effect of the fiscal crisis could be negligible. However, the states in Nigeria, all at once mean the same effect as though the three big states earlier mentioned failed.

Too-Big-To-Fail Theory: Application to Nigeria
The too big to fail theory argues that big size should increase the stability by higher resistance to the shocks. In other words, a big state in Nigeria such as Lagos State, Rivers State or Kano state should not default, since the theory assumes that they possess the size (economic and political size) needed to withstand a shock. However, a lump-up of states, considers a default as an aftermath of internal structural imbalances that became inevitable thereby leading to a crisis. Also, additionally, higher products range and regional diversification should create negative correlations that diminish sensitivity to local volatilities and lack of synchronization in business cycles. In the times of crisis, this way of thinking turned out to be wrong. Huge financial institutions changed their role from market players to market makers. They became the market. As a result they accumulated a large systemic risk. The conclusion is that growing the size should cause increased responsibility. It should be especially visible in the costs of activity. States in Nigeria that engage in projects should consider cost implications and revenue concerns so as to avoid largely been negatively affected in times of distress.

Conceptual Issues
This section contains discussions on the conceptual issues on the theory adopted for this research, conceptual clarifications on the bailout of lower level government by a central government, and also bailouts and the problem of soft budget constraint.

Conceptual Issues on Too-Big-To-Fail
Ben Bernanke also defined the term in 2010: "A too-big-to-fail firm is one whose size, complexity, interconnectedness, and critical functions are such that, should the firm go unexpectedly into liquidation, the rest of the financial system and the economy would face severe adverse consequences." He continued that: "Governments provide support to too-big-to-fail firms in a crisis not out of favoritism or particular concern for the management, owners, or creditors of the firm, but because they recognize that the consequences for the broader economy of allowing a disorderly failure greatly outweigh the costs of avoiding the failure in some way. In application to Nigeria however, if in unison these states in Nigeria are allowed to fail, the cost on the populace, the unaffected states and the economy at large will be huge. Common means of avoiding failure include facilitating a merger, providing credit, or injecting government capital, all of which protect at least some creditors who otherwise would have suffered losses. If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved." 13

Conceptual Issues on Bailout
The term bailout has been misused and misinterpreted by the media. It is therefore important to define the term. Bailout is defined as "a form of government interpolation in another market arena, in most cases, a private market". One level of government may also intervene in the affairs of another level of government. The federal government, for example, may bail out a state or local government, and a state government may bail out a local government and even one state government can bailout another. 14 Also, doctrines of sovereign immunity and other limitations on federal, state, or local liability might be thought of as reverse bailouts by which private citizens bail out government. Given its focus on government bailouts, consideration of reverse bailouts is beyond the scope of this research.
In Nigeria, government is decentralized into federal, states and local governments for ease of administration and sends development to every corner of the country, so there are levels of government. This is usually expected to help government meet up with its tasks at federal, state and local government levels. Other countries in recent times have also been decentralized. Decentralization has been promoted based on different arguments: democracy and good governance; preservation of cultural and ethnic identity; and economic rationales (Rodríguez-Pose and Sandall 2008; Kwon 2013). This decentralization of government responsibilities poses the threat of a common pool problem; a situation in which the lower level government avoids part of its responsibilities and shifts the burden of providing public services to the central government.

Bailouts and the problem of soft budget constraints:
The shifting of responsibilities establishes the reliance or dependence on what is generally referred to as soft budget constraint. According to Kornai (1980), when a subnational government faces a soft budget constraint, it expects a higher level of government to support it in the case of financial distress. The justification of such expectation may remain unclear, however, and this expectation may be based on formal institutions or regulations, or on informal practices. A soft budget constraint creates a platform for lower level government to engage themselves in increased risk taking and also excessive borrowing. This will lead to inefficient allocation of scarce resources. The concept of soft budget constraints according to Kornai (1980)  In Nigeria, no specific guideline or policy exists to guide the conduct of the bailout. This is unlike other countries. For example, Dutch law explicitly states that lower levels of government which are no longer able to balance their books may apply for a bailout. This bailout takes the form of a gift, not a loan. However, bailouts could even occur in cases of local fiscal irresponsibility (Allers, M., 2015). In this kind of system, we can say that an occurrence of bailout solved by this system is sustainable. This is because few Dutch municipalities need to be bailed out, and the total amount spent on bailouts is modest. After being bailed out, municipalities tend to improve their financial situation fairly rapidly, without the need for new bailouts later on. The bailout system does not appear to give municipalities a strong incentive to misbehave.

Review of Bailout: Evidence from different countries
In order to comprehend the nature of state bailout, a global review of bailout is carried out in this section. This included two case studies; the case of the city of Detroit's 2012 financial crisis and the nature of fiscal crisis in the Netherlands.

Detroit (2012) Bailout 15
The City of Detroit's cash flow crisis was not because of its outstanding debt, but because it was no longer bringing in enough revenue to cover its immediate expenses. Detroit's bankruptcy was driven by a severe decline in revenues (and, importantly, not an increase in obligations to fund pensions). Depopulation and long-term unemployment caused Detroit's property and income tax revenues to plummet. The state of Michigan worsened the problems by slashing revenue it shared with the city. The city's overall expenses had declined over the last five years, although its financial expenses have increased. In addition, Wall Street sold risky financial instruments to the city, which further threatened the resolution of the crisis. To return Detroit to long-term fiscal health, the city was encouraged to increase revenue and extract itself from the financial transactions that threaten to drain its budget even further.
Detroit's bankruptcy was, at its core, a cash flow problem caused by its inability to bring in enough revenue to pay its bills. While the City's emergency manager focused on cutting retiree benefits and reducing the city's long-term liabilities to address the crisis, analysis of the city's finances revealed that his efforts are inappropriate and, in important ways, not rooted in fact. Detroit's bankruptcy was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk. To address the city's cash flow shortfall and get it out of bankruptcy, the emergency manager was encouraged to focus on increasing revenue and extricating the city from these toxic financial deals.
This case study stresses that in order to comprehend the causes of a fiscal crisis in a state, one need to investigate the expenses and revenue of these states and establish whether an alarm for a bailout from the central government is justifiable.

Fiscal Crisis in the Netherlands
In the Netherlands, government bailouts follow a standard which has been applied to different fiscal crisis at different times. In 1967, the first year in which bailout grants under Article 12 of the Financial Relations Act were provided, 15 per cent of all municipalities were bailed out in the Netherlands. As the number of small municipalities was reduced steadily, and the fiscal equalization system was refined, bailout became less frequent. In 1998-2014, just ten different municipalities were bailed out, and received bailout grants for an average of three to four years per municipality. In a single year, an average of less than four municipalities (0.7 per cent) received a bailout grant in this period.
Before the new equalization scheme was in place, bailouts were often believed, rightly or wrongly, to result from insufficient means, combined with nationwide minimum standards for local public services. Thus, there was no strong stigma attached to bailout. Since then, each municipality is supposed to be able to finance the standard package of local services while levying a standard tax rate. Thus, municipalities bailed out after 1997 are much more likely to bear responsibility.
In the Netherlands, typical bailout grants vary between 150 and 400 euro per inhabitant per year. Over the entire bailout period, this amount can get as high as 2,800 euro per inhabitant. Although bailout amounts are sometimes large in local per capita terms, however, as a percentage of the municipal fund, from which they are financed, they are not. This is because, if the central government believes that the fundamental reason for the troubled financial 15 Wallace C. Turbeville position of a municipality is local mismanagement, bailout is still granted. In such cases, however, it may require tax rates above the normal minimum rates.

Data and Methods
This section analyses Nigeria's 2015 bailout of state governments and provide answers to the question of stipulations if the bailout rewarded inefficiency and/or depleted the federal government revenue base without any potential benefits or not. With the review in the previous section in mind, this section proceeds to consider the structure of economic policy in Nigeria and answer the question of whether the recent bailout followed any specific principle of public policy in Nigeria or not. It looks at the form of financing used by the representative of the Federal Government i.e. the CBN and DMO (Debt Management Office). It also analyses the extent to which bailout package has helped resolve the state fiscal crisis as well as the ability of the state governments to enlarge their internal revenue base. This section is thus a basis for ascertaining whether the bailout fund was an economic policy aimed at having real social welfare effects or a means for seeking political alliance with opposing state governments as well as strengthening internal bond in the ruling party.

Research Design
The research design adopted for this study is a descriptive analysis of secondary data on fiscal stance of Nigeria. It is suitable for this study because it helps the researcher to gather data on the fiscal crisis. It also enables the researcher to provide descriptive and explanatory information on the subject of study. The interactions from the data garnered forms the basis of the findings.

Sources of Data
This study considers the states affected by the fiscal crisis, their debt profile and levels of IGR for the periods 2014 to 2015, as well as the amount of bailout applied for, amount of debt restructured, and amount of bailout finally approved by the Federal Government. The analysis focuses on secondary data. These are sourced from the CBN official website, monthly economic reports. Other institutions include the Ministry of Finance, Office of the Accountant-General of the Federation, National Bureau of Statistics and Debt Management Office (DMO) Official Newsletter. The data on IGR is sourced from National Bureau of Statistics Quarterly data survey, while the average monthly Revenue, Capital and Recurrent Expenditure of states is sourced from the monthly report of the office of the accountant general. States Debt ranking and debt restructuring are sourced from DMO's official bulletin.

Analytical Technique
The analysis is predominantly qualitative and not quantitative and uses secondary data. The researcher used Microsoft Excel to analyze the data collated. Graphs, Charts and percentage tables are used to quantify and interpolate the internally generated revenue (IGR) of states, their monthly allocations, magnitude of state debts, comparison of debts level to fund, amount of salary intervention fund disbursed, current basic macroeconomic variable behaviors amongst others.

Discussions Macroeconomic Stance during the Crisis
Given a national fiscal crisis of this sort, it is imperative to underscore the behaviour of certain key macroeconomic variables and their individual vis-à-vis overall responses to the tightening financial conditions in the Nigerian economy. This stems from the macroeconomic understanding that when aggregate demand is immensely affected, investor's confidence, output growth, exchange rate, balance of payments condition amongst other variables also react, some at will and immediately, while others are influenced and may happen in the nearest future say the next quarter.
As shown in table 1 and figure 8, using quarterly data, the year 2015 showed that there was an increase in broad money supply and this continued and even accelerated in the fourth quarter. This key monetary aggregate recorded a growth of 7.0percent in the last quarter of 2015 (which marked the period when the salary intervention fund was dispatched to the state government). In other words, we can attribute this development grossly, to the 11.2 and 8.2 per cent increase in the net foreign assets and other assets (net) of the banking system, respectively. There was a reduction in the deposit and lending rates of banks during the fourth quarter of 2015. This was affirmed by the large difference between the weighted average term deposit and the maximum lending rates which was 20.8 percentage points gap as at the end of the last quarter of 2015. Since basic market indicators trended downwards, these of course had its toll on the Nigerian Stock Exchange (NSE). The value of money market assets owing at the last quarter of 2015 was N8,615.72 billion, representing a fall of 4.6 per cent below the previous level. This development related to the decline in the FGN Bonds unpaid.  The Federal Government's revenue also reduced by 34.5percent which is at N1,600.96 billion as contrasted against her budget estimate. Nigeria's gross oil receipt stood at N830.81 billion and was lower than the expectations designed in the provisional quarterly budget of the government. This was attributed to continuous decline in receipts from crude oil/gas export related to incessant fall in global crude oil price. Apart from the oil receipt, the non-oil receipts also fell below the budget estimate at N770.16 billion. Comparing revenue and expenditure, the Federal Government's reserved revenue was N818.39 billion, while her total expenditure was N1,107.51 billion, which yields a deficit of N289.12 billion in the last quarter of 2015, which thus yielded a shortfall of N28.87billion in deficit.
Since the activities in the agricultural sector were of the harvesting period, the end-period headline inflation rate on year-on-year basis, was 9.6 per cent, while the inflation rate on a 12-month moving average basis was 9.0 per cent. The level of demand and supply interactions globally was estimated at between 93.95 million barrels per day (mbd) and 95.12 mbd, respectively, in the last quarter. Due to the Nigeria's crude oil production capacity and techniques applied, the mean price of Nigeria's reference crude i.e. the Bonny Light (370 API), declined by 13.8 per cent which was below the level in the previous quarter.
A comparison between Nigeria's foreign exchange inflow and outflow through the official of the government (i.e. the CBN) was US$7.14 billion and US$7.76 billion, respectively, which resulted in a net outflow of US$0.62 billion. On the average, the exchange rate of the naira vis-à-vis the US dollar at the inter-bank stood at N196.99 but was N238.69 per US dollar in the parallel market representing a depreciation of 5.7 per cent. These were not without the activities in the international scene, which included fall in oil prices, increase in dollar value, dwindling economic activity in China, fluctuating investor confidence in Europe amongst others.
Given the above analysis of Nigeria's macroeconomic stance in 2015 during the fiscal crisis, it is clear to assert that overall macroeconomic environment remained fragile. This is because the wheels of the economy continually slowed down into the New Year 2016. There was a severe strain on the growth rate of the economy due to fall in both private and public expenditures (decline in aggregate demand) largely caused by the impact of non-payment of salaries at the state and local government levels. This further informed the rate of year-on-year headline inflation upwards as well as intense pressure in the foreign exchange market.
In view of the above scenario, a further stress occurred in the economy, especially considering the fragile nature of the banking sector performance indicators. This stemmed from liquidity withdrawals due to the employment of the Treasury Single Account (TSA), the extension of the tenancy of state government loans alongside the loans to the oil and gas sectors. These ultimately impaired their financial intermediation role, adversely affected economic growth and worsened conditions in the markets. Thus, the possibility of the economy slipping into a recession was imminent, except the government considered proactive steps to revitalize the economy and revive sustainable growth in key sectors of the economy.

Macroeconomic considerations for a bailout
In the light of a bailout policy of twenty-eight (28) state governments by the federal government of Nigeria certain macroeconomic stance should first be considered, so that the motive of such funding would be accurately defined. There should be a cordial relationship between monetary and fiscal policies which is a potent option to sustainable growth. Though people may borrow to finance their food consumption, the pressure on food prices should gradually recede. This can reinstall business confidence. With these in mind, the ability of the government to resolve the fiscal challenges at the lower level governments alongside the anticorruption drive, could improve the business environment, encourage an influx of foreign direct investment and by itself protect the country's foreign reserves.
In any sound economy, if investor's confidence is high, employment generation should come as a bye-product. Since despite the TSA, Nigeria's banking system liquidity ratio has remained moderate, the banks should align with the efforts of the government at job creation via channeling available liquidity into growth enhancing sectors of the economy such as agriculture and manufacturing. These banks should thus endeavor to correct the slow growth prospects of the Gross Domestic Product (GDP) by editing the directions of loans issued out to firms and business that are not in the key sectors that could drive growth in Nigeria as well as sojourn loans in trajectory to levels of governments no matter the level of influence of such government regimes.

Fiscal Stance of State Governments
This sub-section analyses the recurrent and capital expenditure of states, state government debt, states fiscal sustainability index and analysis into the future.

States' Recurrent and Capital Expenditure
The recurrent expenditure of states includes personnel costs and overheads. Figure 9 and figure 10 shows the recurrent expenditure of states with expenditure below ₦60bil and above ₦60bil respectively. 18 states spend less than ₦60billion on salaries, emoluments and overhead costs while 18 states spend above ₦60billion. Katsina spent the least amount estimated at ₦32.29billion, while Lagos spent the highest with ₦241.97billion. Figure 9: States with recurrent expenditure below N60billion Electronic copy available at: https://ssrn.com/abstract=3342552

Average Monthly Shortfall
In an ideal situation, revenue should equal expenditure. However, this is not usually the case for state governments in Nigeria. Figure 13 shows the identified gaps referred to as shortfalls for each state. The Average Monthly commitment of 18 states having a shortfall when compared to their revenue. Osun state has the highest amount of shortfall in monthly commitment i.e. salary and pension arrears with about N3.5billion. This is followed by Plateau, Ogun, Nasarrawa, Oyo and Bayelsa states who also have high amount of shortfall (i.e. inability to meet up with their monthly commitment each month).
This could thus prompt the need for debt financing. However, debt financing have been identified as a means of meeting basic capital requirements of the states and not necessarily salary and pension arrears. Thus, not all states with identified shortfall as above are expected to opt for debt financing. Figure 6 shows the debts of states.

State Governments' Debts
From figure 14 and 15, Yobe state has the least amount of debt at N7.8billion while Lagos state has the highest amount of debt which stood at N500.8billion.

States' Fiscal Sustainability Index
In order to further comprehend whether the bailout package encouraged inefficiency and/or depleted the federal government revenue base without any potential benefits and how it has helped resolve the state fiscal crisis, this research analyses the fiscal sustainability index of each state. This interpolation of financial data of government revenue, debt, and expenditure is necessary as it informs the basis for which bailout were given. It also enriches the policy recommendations and conclusions in subsequent subsections of this research. This is because it revealed that a gap between revenue and expenditure should not be immediately fed by debt, especially where there are other sources of revenue available to state governments. Hence, when a state is still fiscally sustainable, an option of debt is not viable. The sustainability index is an interaction index that ultimately considers the overall revenue base of each state during the fiscal crisis, its expenditure profile and total debt stock.
The study employs the following fiscal sustainability index measure as used by BudgIT State of States (2015) 17 .
The data used in this analysis are shown in the appendix 8. Index A = Recurrent Expenditure / IGR+Derivation+VAT Index B = Recurrent Expenditure / Total Revenue Index C = Total Debt Stock / Total Revenue Sustainability Index = (Index A x 35) + (Index B x 50) + (Index C x 15) 100 Scores = 100 / Sustainability Index The formula above is used to compute the sustainability index of all the states in Nigeria. The details of this calculation are reported in appendix 8. However, table 2 below is just a summary of the index, alongside columns for the amount of bailout fund applied for and the amount eventually disbursed to state governments. This is discussed below.   figure 16, there are states who did not apply for the fund but got the salary intervention facility e.g Kano state got N20billion, Kaduna state also got N14.20billion and Taraba state also got N9.4billion. This means that the state bailout process may not have followed a clearly defined pattern. From the foregoing, Rivers, Lagos and Enugu headed the sustainability index. This makes them top the list of states performing above average in fiscal sustainability. This makes them capable of handling their fiscal responsibilities during the crisis. Between January 2015 and July 2015 when the application for a bailout from the Federal Government became intensified, an analysis of states fiscal management is needed. This includes how much IGR is being generated by each state, the monthly allocations from the Federation Accounts Allocation Committee (FAAC) needed to cover their recurrent expenditure, amongst others.
The need for this sustainability index as a measure of fiscal performance during the fiscal crisis of 2015 shows the ability of the revenue generated and amount centrally collected to meet up with salary payments and pension arrears. This is also done alongside a debt-to-revenue ratio for states that opted for increased debt financing during the crisis. But with a poor economic outlook as a result of the fall in global price of crude oil, revenue from the Excess Crude Account fell and led to increased debt servicing, inability to pay salaries, pensioners and project contractors. From the analysis of the fiscal stance of states above, Borno, Yobe and Osun states were performed poorly as indicated by the fiscal sustainability index.

Analysis into the future
From the period of the release of bailout funds to state governments, the performance of the state's fiscal management has not measured up to expectations. A quick review 18 showed that 22 states has no outstanding payments, 5 states has three months outstanding payments, 2 states has one-month outstanding payments, 2 states also has four months outstanding payment. 4 states have two months outstanding payment, while 1 state has eightmonth outstanding payment.

The 2016 Fiscal Sustainability Plan (FSP)
Based on events and projections coming from the analysis in this research, the future seems bright, and could be tied to the 2016 FSP. This is a plan agreed upon by the state governors and the Federal Government's (FG) economic team. It aims at ensuring proper management of sub-national level of government's resources. It also opens for measures that the Ministry of Finance and the CBN could take to guide against incoherent ways in which state governors could access funds e.g. bank loans.
The bailout fund has licensed the Federal Government to deduct certain amount at source from the states' monthly allocations, which actually leaves the states with very little amount to meet up with their recurrent expenditure. To avoid incurring huge debt alongside this, the FG recommends that states source for funds in the capital market for their capital projects financing. All of such recommendations however expect to yield an improved public financial management, transparency and accountability by state governments, boost public revenue, and also sustain debt management.
A FSP of this kind is a projection into the future and is expected to yield results soonest. Hence, it should cut across all tiers of government. Since it is a public financial management reform programme of the FG, a direction of states' focus towards fiscal independence can also yield expected outcomes. Also, sources of the internally generated revenue of states should grossly expand beyond taxes, licences, fees or levies.

Moral Hazard Effect of the Bailout
There are incentives for every economic activity. In the case of bailout of a corporation (private) or level of government (state, local or central government) however, there are possibilities of socially undesirable incentives. This is because a continuous use of bailout in a time of fiscal crisis gives private agents the opportunity and capability to predict that bailout will always be granted whenever the conditions for it to happen occurs. In other words, the behaviour of economic agents will no doubt be influenced in various ways, if they could predict accurately who gets a bailout package, the conditions attached among other factors.
These expectations for a bailout package could also come with negative or adverse behaviours. Given the prevailing economic structure of a country where market anticipates that illiquid firms or insolvent state governments will get a bailout, it is possible to expect that the existing or even potential creditors will not morally take care of the liquidity of borrowers' assets, leading to recklessness in the way and manner in which management or state governors will handle liquidity issues.
In this regard therefore, credit risks will be inappropriately handled. This possibly encourages state governors to exercise their revenue and expenditure situation to fit that of a possibility of being rescued as this helps reduce their cost of credit. A lump-up of several states failing at the same time brings to mind again the "too-big-too-fail" problem and is the result of this concern. It is reasonable to therefore think thus; "If Nigerians and most especially the state governors knows that the federal government will bail out only when they are all largely affected (e.g. 28states out of 36states i.e. 78% of the economy affected with unpaid salaries, retirees pensions and huge debts), then creditors will tend to reduce credit costs only in situations when they all agree to fail'

Bailout and Political Considerations
It comes with grave consequences if the government decides to be unfair in issuing bailout to state governments in a fiscal crisis, considering distributional fairness. This is because the federal government has monopoly over funds and thus acts as a lender of last resort to the state governments. The price it can charge is unfixed and could be higher beyond moral hazard concerns. The federal government could also discriminate when it shares the fund so as to foster political arms and lengthen political bonds among the state governments. The case for fairness should thus not be taken frivolously.

Figure 18: Political Parties of States and the Salary Intervention Fund
From the figure, all APC states got huge funds as compared to People's Democratic Party (PDP) states. It is important to note also that Bayelsa state (PDP state) applied but did not get (this could be due to the state not meeting up with the conditions for the intervention fund), since Kogi state (APC state) also applied and did not also get. Kaduna, Kano and Taraba states did not apply initially but got the salary intervention fund.

Summary, Conclusion and Lessons for Policy Summary of Findings
In order to examine the nature, trends, pattern and determinants of bailouts in Nigeria and other case study countries vis-à-vis those initiated and implemented in the United States and Europe, this study focused on the 2015 State Fiscal Crisis in Nigeria. It investigated the state bailout and its viability. The history of government intervention in Nigeria was also traced to comprehend the facts (present and future) of the Fiscal Crisis as well as the nature and causes of the current fiscal crisis, among others. The "Too Big to Fail" (TBTF) theory was used to explain that the failure of 28 states in sum cannot be avoided by the Federal Government and this has consequences for the economy which therefore necessitates a bailout fund (Salary Intervention Fund).
The Nigerian Bailout was analyzed using data from Debt Management Office, the Central Bank of Nigeria, Office of the Accountant-General and the Federal Ministry of Finance. This provided the report with the statistics of Monthly Gross Allocation to states, Deductions at source and Net Allocations available to each state. The Salary Intervention Fund disbursed to states and the Internally Generated Revenue of each state before the commencement of the crisis was also used. Other data include the External debt of each state, amount applied for, among others. These data helped to ascertain the fiscal stance of the states before, during and after the intervention of the Federal Government.
Given the fiscal sustainability index results of each of the states, the research found that before any bailout fund can be effectively utilized in an economy, the macroeconomic stance of the economy before and during the period of the crisis should be critically assessed. This will provide the Federal Government the ability to comprehend the behaviour of basic macroeconomic indicators. The fiscal stance of the state governments has revealed in the fiscal sustainability index showed that the ability of the revenue generated, and amount centrally collected by 18 states to meet up with salary payments and pension arrears was limited. This thus necessitated the need for debts so as to finance their fiscal responsibilities.
The research revealed that despite the intervention fund the basic macroeconomic indicators behaved poorly, for instance, the inflation rate remained high, exchange rate further deteriorated, among others. These indicate that the timing and direction of the funds may have been misplaced. In other words, aggregate demand should be boosted so that investor confidence can be attained, since the global price of crude oil has adjusted. Also the moral hazard effect of the fund indicated that bailout, if not properly managed can inform further mismanagement of public fund and where other states are encouraged to fail, the Federal Government may continually lack performance from the too big to fail problem.
The research further found out that there are issues of fairness in the distribution of the bailout funds among affected states as well as some degree of political considerations. This is also important so as to effectively establish equity and justice in the use of funds in the federal purse. The findings of this research is also in the area of the procedural principles used in the bailout among which include the need for the legal system to be active both ex-ante and expost.

Conclusion
In conclusion, ethically, it is clear to state that problem solving via bailout funds may be costlier than estimated benefits, hence the activism for a bailout-free economic structure at least for most states if not all the state governments in Nigeria is researchable. Such an economic structure is however challenging to economic policymakers, since incentives differ greatly amongst economic actors and tethering consequences to actions amongst them become difficult. In certain instances, the best thing to do is to be critical about existing regulations; but in other cases it may be to make the policy guide less stringent to clearly allow agents bear the consequences of their actions.
Form the findings of this research, a state that is fiscally sustainable possess certain abilities to generate revenue from within. A clear-cut policy should thus exist to affirm that states could only borrow to finance capital projects and not to pay recurrent expenditure (that is salary arrears and pensions). From section three (2) of this study, a state can lend to another state at some understandable rates of interest.
To effectively balance the analysis here however, it is important that the central government should not punish a state that have mismanaged her liquidity by not releasing bailout funds and/or by imposing certain forms of haircuts. This is because: i. during a fiscal crisis, it is difficult to have an accurate evaluation of the state's ability to manage federally collected (allocated) revenue and its solvency or liquidity in general, hence creditors need to be assured of the safety of their funds, workers and pensioners also have high hopes of payments of their entitlements; and ii.
if the fiscal crisis is allowed to blow beyond proportion, it would be entirely difficult to hedge, since the bailout funds will in no way yield incentives for state governments to manage their funds in normal times.

Lessons for Policy
The following are lessons for policy: i. bailout funds should be given only when there is systemic fiscal crisis that is a situation where the particular state cannot have access to credit in all possible ways (internally and/or externally). This seems impossible and the encouragement to future recklessness is small; ii.
bailout funds should go together with haircuts. These include increased rate of interests and other possible payments in form of penalties that secures the creditors and tax payers (Nigerians) at large. This should discourage state governments from engaging in high risk taking. Thus, a strong assumption here is against bailout except where there is a liquidity crisis that sure affects the national financial system negatively and further has significant macroeconomic consequences; iii.
setting a price (interest rate) that strictly considers the performance of the economy, specially the fluctuations in basic macroeconomic indicators. This interest rate must not maximize returns to the Federal Government or the taxpayers and should reflect prevailing market conditions. Even when state governments are willing to pay higher prices and show some degree of desperation for the bailout funds, the Federal Government may not necessarily do so; iv. the Federal Government must not give special considerations to political her ally i.e. same political party ruling in a state. The Nigerian public, for example, wanted the Federal Government to reduce recurrent expenditure of the state governors and their cabinet, but the Federal Government may lack not only the legal authority to do so but also the integrity and public confidence to do so; v.
emphases are to be on state governments to increase their Internally Generated Revenue and not necessarily depend on the Monthly allocation from the Federal Government. This will be done through effective local tax administration by state and local governments; vi.
in states where there are increased deductions from Monthly Statutory Allocations, the Federal Government should design a better plan for these deductions, such as reinvesting such deductions in the state to boost their revenue base. For instance, as shown in the accounts prepared by the Office of the Accountant-General of the Federation, there are some deductions which cover National Water Rehabilitation Projects, National Agricultural Technology Support Programme, Payment for Fertilizer, State Water Supply Project, State Agricultural Project and National Fadama Project. Such deductions should be properly managed by not been too frequent especially during times of economic downturns for states suffering from decreasing Internally Generated revenue; and vii.
as is the case in Detroit' City Fiscal Crisis of 2012 in the United States, a post-structural plan must be in place for the states in Nigeria. These structural programs should aim at strengthening the tax base of the affected states as well as allow it to return to a level of economic prosperity overtime. Tax subsidies and sector-based strengthening expenditures that could serve as incentives to investors should further be applied. For instance, recurrent expenditure should be reduced while projects that emphasize infrastructural development should be enhanced and widely supported.

Agenda for Further Research
Nigeria is a blessed but complex nation. Policy issues will continue to raise ethical as well as economic concerns among others. This research in its entirety continues to raise logical questions than it provides generally acceptable answers. It is intended however to highlight some areas in which researchers would continue to dig for explanations in the face of unfolding economic and policy issues. These include: i. issues of looming fiscal crisis immediately after a campaign period; ii.
an appropriate empirical measure of moral hazard in the government bailout, ethical considerations, political ties and considerations (i.e. insider trading as it is called in the private sector); and iii.
find out whether government decision-makers are not simply gambling with tax-payers money and not taking unnecessary and excessive risks.