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

Abstract

This study is aimed at determining the benefits or otherwise of the bailout made to states by the federal government of Nigeria.  It sought to answer the questions of whether the bailout was a reward to inefficiency and/or depleted the federal government revenue base without any potential benefits; if it followed any prudent public policy principles in Nigeria or not; and extent to which the bailout package has resolve the state fiscal crisis and its effect on state governments’ internal revenue bases. With data sourced from the Central Bank of Nigeria, Federal Ministry of Finance, and other sources, content analysis was employed which led to the computation of the fiscal sustainability index of each of the states of the federation. 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. A conclusion of the study is that ethically, problem solving via bailout funds may be costlier than estimated benefits.

Keywords: Government bailout, Fiscal Crisis, Fiscal Sustainability Index, Internally Generated Revenue, Monthly Statutory Allocation.