The administration of Governor Rauf Aregbesola of Osun State has successfully tackled the problem of irregular payment of salaries to the delight of the entire workforce of the state, resulting in the overall improvement in the welfare of the citizens and boosting the economy of the state. Now Osun State is rated the second best in the country in human development index.
Bola Oyebamiji, Commissioner for Finance, Osun State, said the turning point was the modulated salary structure evolved by Governor Aregbesola, which systematically cleared the backlog of unpaid salaries and ensures that the government continues to pay salaries as at when due. Oyebamiji explained that with the modulated salary, workers on levels one to seven, who constitute 67 per cent of workforce, are paid full salaries, while those on grade levels eight to 12, 25 per cent of workforce, receive 75 per cent of their salaries. Workers on grade levels 13 to 17, a mere 8 per cent of workforce, as well as all political appointees, receive 50 per cent of their salaries.
Governor Aregbesola, though unhappy to pay the modulated salary to the workers, said the state was compelled by its financial reality to adopt it to tackle the menace of irregular payment of salaries. He said the modulated salary was also necessitated by the desire of his administration to provide massive infrastructure, develop the state economically and transform Osogbo into a modern state capital.
Like many other states in the country, the wage bill of the Osun State rose from N1.1 billion in 2010 to N2.2 billion in 2012 when the Federal Government negotiated a unilateral and blanket minimum wage on behalf of all states. According to Oyebamiji, by October 2014 when the price of crude oil crashed, Osun State, like many others, started having a backlog of unpaid salaries. He said many states became fiscally unstable due to shortfall in federally collected revenues, hence the Osun State’s revenue projections suffered a setback, affecting its capacity to repay its debts.
The government was confronted with two options – to continue to pay salaries of civil-servants using over 70 per cent of the state’s revenue (civil-servants represent less than 1 per cent of the 4.2 million population of the state) or provide the platform for massive investments and position the state on a path of sustainable economic development.
The Aregbesola administration opted for a mix of financing options to reduce risks and meet its primary statutory obligations, committing 30 per cent of the revenue to debt servicing, leaving free cash-flow for critical and mandatory expenditures such as salaries.
Fittingly, President Muhammadu Buhari heeded Osun’s call to help the state and others to restructure their commercial loans into Federal Government bonds in August 2015. The Federal Government also granted a concessionary loan to Osun State and many other states to clear backlogs of salaries and restore them to the path of treasury and fiscal stability. Osun State had then submitted a request of N40.3 billion for the state and N23.9 billion for local governments to offset salary arrears. But only N25.8 billion was approved and released to the state and N9.1 billion was approved and released for the local governments, making it impossible to settle all outstanding salaries as at June 2015.
The payment of pension and gratuities were not included in the amounts released as bailout loans for the state and local governments. The labour union initially disagreed that the pensioners be included but later accepted the argument of the Osun State government that pensioners are major stakeholders and that they should be accommodated to sustain Osun’s economic activities as local earners of incomes. Therefore, the pensioners were paid their pension arrears, and only the outstanding gratuities could not be accommodated.
From August 2015 till now, the prudent management of concessionary loan (bailout) and revenues by the administration of Aregbesola has ensured salaries are paid and workers keep their jobs, rather than embark on mass retrenchment.
Governor Aregbesola acknowledged that the workers have shown maturity, support and understanding: “We acknowledge and appreciate the sacrifice and support of the workers.” It was not surprising, therefore, that the modulated salary scheme became a huge success. Many attribute its success to an extensive stakeholders’ engagement prior to its commencement.
Adelani Baderinwa, Commissioner for Information, Osun State, said the state government consulted widely and secured the buy-in of critical stakeholders, particularly the labour union. For instance, Babatunde Jacob Adekomi, chairman of the Nigeria Labour Co‎ngress, NLC, Osun State chapter, threw his weight behind the modulated salary, acknowledging recently that the state government had paid outstanding salaries of all workers in line with the agreement between it and the labour union. Adekomi said that the leadership of the union had earlier reached a compromise with the state government on the disbursement of the second tranche of Paris Club Refunds to offset the balance of the modulated salaries.
According to him, the Aregbesola administration has been highly sensitive to the plight of workers; a development which he said has made Osun State to stand out among its peers when the recession set in. “I always wonder why some people felt that the best way to gain attention is to concoct lies. I am a civil servant and I can never say what I don’t see or have knowledge about. It is on record that this government has been meeting up its salary obligations to workers before the recession set‎ in and it is practically difficult to continue in such spirit. But since we (government and workers) mutually reached a compromise that resulted to modulated salaries for some categories of workers, the state has been up to its responsibilities,” Adekomi explained.
By paying a larger percentage of the workforce regularly and addressing the overall welfare of the citizens of the state, the government boosted the Gross Domestic Product, GDP, of the state. Statistics indicate that Osun State’s GDP is growing at the rate of 7.3 per cent per annum and is the fifth largest economy in Nigeria.
Despite the good rating of Osun State in human capital development, as attested to by independent reports from several credible local and international organizations, it has come under close scrutiny lately, particularly by BudgIT, which says that the state cannot meet its obligations due to huge deductions from federal allocations for debt repayment.
However, stakeholders believe that the state’s debts were judiciously utilized as they were used to finance the legacy debts inherited by the Aregbesola (Oyinlola) administration; deliver critical road infrastructure, reposition Osogbo and other major towns in order to support trade and commerce; deliver critical education infrastructure to reposition Basic education and build requisite manpower foundation to drive the economic revival of the state.
It became clear that the state government had to embrace financial re-engineering to provide necessary infrastructure for economic growth. Although the government increased its Internally Generated Revenue, IGR, from N300 million to N700 million within a short time, after employing more than 100 youths into the State’s Internal Revenue Service, to meet the N1 billion monthly IGR target at the end of 2017, it was expedient to embrace other financing options pay salaries and provide critical infrastructure.
As at 2012, Osun State had a stable economic profile as both the revenue and debts of the state were sustainable because the economy had a stable outlook. It was projected then that the state’s total revenue would rise to N235 billion by 2017, with statutory allocation estimated to also rise to N61.8 billion. The state’s monthly IGR was also projected to hit the N7.5 billion mark as against N700 million currently, which is only 29 per cent of the monthly requirement for debt servicing. Regrettably, those projections were not fully realised.
According to both the Osun Debt Management Office and the Debt Management Office, DMO, its equivalent at the federal Government level, the state had a debt stock of N186.7 billion (local governments inclusive) as at 31 December, 2016 and the state’s portion of this debt was N165.3 billion, including multilateral debts.
Oyebamiji said the state government had to transform its total debt stock into bonds facilitated by the Federal Government with a repayment period of 20 years. The state also placed a Sukuk Bond totaling N11 billion on 10th of October 2013 to finance critical infrastructural projects. Sukuk is an interest-free Islamic financial instrument that has been accessed by the Federal Government, Indonesia, Malaysia and Britain. Osun State’s debts are, however, within acceptable and manageable threshold. Based on the state’s 2016 revenue projection, the percentage of debt to revenue of 174 is lower than the 250 per cent benchmark of the Federal Ministry of Finance, and with a repayment period of 20 years, the sustainability of the debts is in no doubt, especially with current efforts at increasing revenue streams.
The commissioner for information explained that the funds borrowed were strictly for infrastructural and human capital development as indicated in the report on Sub-National Competitiveness Index. His words: “The ranking of Osun as Second in Human Capital amongst the 36 states in the Federation in the First Sub-National Competitiveness Index is an endorsement of our belief that investment in Education and other critical infrastructure can never be overemphasized.”
Ibrahim Olayinka, president of Network of Non-Governmental Organisations, NETNOS, acknowledged the social intervention programme of the Aregbesola administration, assuring that his group would partner the state government on orientation and enlightenment of the people of the state.
The modulated salary structure has proved to be a huge success in Osun State when the ongoing large infrastructure outlay is considered and the benefits accruing to the average citizens of the state.