The ministry said the proposed facility, aimed at providing support to overcome the current financial challenges, would be subject to states meeting a stringent 22-point reform agenda called the Fiscal Sustainability Plan.
The FSP was unanimously agreed by state governors during the National Economic Council meeting held on May 19, 2016.
It encompasses a framework of reform measures including the requirement to publish audited financial statements and budgets, the Bank Verification Number payroll review exercises to sanitise payroll costs, and limits on recurrent expenditure levels.
Other reforms will also see state government meeting specific targets to enhance their Internally Generated Revenue.
These include the establishment of the Efficiency Units to reduce overhead costs, privatisation of state-owned enterprises, domestication of the Fiscal Responsibility Act, and limits on the amount of banks loans that could be further secured.
The ministry said the Federal Government had agreed to develop the International Public Sector Accounting Standards-compliant software for states to use.
The government has also agreed to develop new bond issuance guidelines to ease access to the capital market for states wishing to fund developmental projects.
The statement said, “The disbursements of the fund will be conditional upon states meeting the agreed targets, and will be subject to monitoring and evaluation by independent monitoring agents.
States that fail to meet the agreed reform targets will be excluded from further funding, according to the statememt. The FSP mirrors the public financial management reforms currently being pursued at the Federal Government level and is expected to set the states on a path towards long-term fiscal sustainability.”