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

33 Pages Posted: 19 Mar 2019

See all articles by Festus Adedoyin

Festus Adedoyin

Bournemouth University - Business School, Students

Date Written: February 26, 2019


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.

Keywords: Government bailout, Fiscal Crisis, Fiscal Sustainability Index, Internally Generated Revenue, Nigeria

Suggested Citation

Adedoyin, Festus, Government Bailout of Distressed States in Nigeria: An Analysis of the 2015 Fiscal Crisis (February 26, 2019). Available at SSRN: or

Festus Adedoyin (Contact Author)

Bournemouth University - Business School, Students ( email )

United Kingdom

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