CHAPTER 8 – State Governments in a Quandary in Nigeria over Oil Price Decline: The Politics of Bailout Elixir by Festus O. Egwaikhide

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The challenges of weak subnational government finances and federal fiscal bailouts have long been recognized in the public finance literature, but they have received limited attention in developing countries, particularly in sub-Sahara Africa. The recent experience of fiscal crises in several Nigerian states presents a case for examination into the systemic weaknesses that led to the crises and its implications on the states’ fiscal stance and necessity for the bailout. Therefore, this paper examines the recent federal bailout in Nigeria, and attempts to point out the structural weaknesses of the states’ public finances that culminated into their poor fiscal performance. The fiscal weaknesses in subnational governments in a democracy create a fertile ground for political opportunism to grow. In this regard, incumbent governments may use tools such as bailout
policies to achieve certain political objectives.

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