Governors from various states in Nigeria are opposing the federal government’s attempts to require local governments to establish accounts with the Central Bank of Nigeria (CBN) for direct allocation payments.
The federal government’s strategy comes in response to a recent Supreme Court decision that grants financial independence to local governments, ensuring that funds are deposited directly into their accounts. At first, the governors convinced federal officials to postpone this plan so they could resolve technical issues. However, as implementation neared completion, the governors shifted their stance and started pushing for local governments to keep their accounts with commercial banks instead.
Their primary argument is that local governments are not legally required to conduct banking with the CBN.
Akin Oyebode, the Chairman of the Finance Commissioners Forum, stated in an interview with The Nation that mandating local governments to conduct banking activities exclusively through the CBN would be illegal.
“I won’t be forced to open an account,” Oyebode stated.
“As far as I know, no local government has expressed a desire to have an account with the CBN. They already maintain accounts with commercial banks.”
He stressed that determining whether revenue should be distributed directly to local governments or channeled through the Joint Account Allocation Committee (JAC) hinges on how the constitution is interpreted.
“The debate about whether to pay local governments directly or through JAC is an administrative matter,” he pointed out. “JAC itself is established by the constitution.”
Oyebode highlighted that Section 7 of the 1999 Constitution grants state Houses of Assembly the authority to make laws regarding local government administration, including financial supervision. Using Anambra State as an example, he asserted that states are entitled to determine how they manage funds for local governments.
Recognizing worries about the possible misuse of local government funds by states, Oyebode contended that the Supreme Court ruling focused more on strengthening autonomy than prescribing specific payment methods.
“The Supreme Court’s decision is revolutionary,” he stated. “You can’t dismiss a local government chairman and still anticipate receiving the revenues; that’s the true significance of this judgment.”
He mentioned that even if local governments obtain direct allocations from the federal government, state governments could still enact laws mandating them to handle funds through JAC.
Oyebode also cautioned that without revising the revenue-sharing formula, numerous local governments would face financial difficulties.
“If you don’t review those indices and continue to pay local governments directly, at least one-third of them will face insolvency,” he stated. “Currently, these local governments cannot even cover their salary expenses with the funds they receive.”
To tackle this issue, he clarified that states presently utilize JAC to consolidate resources and prioritize salary payments before allocating the remaining funds according to service requirements. He also pointed out that local governments are required to support initiatives such as the Universal Basic Education Commission (UBEC) by supplying counterpart funding from each state.
Regarding the matter of CBN accounts, Oyebode asserted that the federal government does not have the authority to mandate banking decisions for local governments.
He stated, “The account owner possesses the right to self-determination. The Central Bank serves as the bank for the federal government, and local governments are not merely extensions of the federal government.”
He also raised doubts about the practicality of local governments banking with the CBN, contending that as a central bank, it is not designed to offer retail banking services.
“The Central Bank is not a retail bank. It doesn’t even serve states, of which there are only 36, let alone local governments in remote locations,” he stated.
Oyebode recommended obtaining additional constitutional clarification on the role of JAC from the Supreme Court, highlighting that state governments’ participation in local government finances is consistent with constitutional guidelines.
He stated, “It’s clear and not a matter of opinion that the constitution provides for this. Section 7 of the constitution permits a state to create laws through its House of Assembly if it wants to oversee local government finances.”
