State governments are borrowing more monies in foreign and local denominations to fund questionable projects, thereby raising their debt stock‎. Chineme Okafor examines the implications for future generations
The easiest options available always appear to be the best way to go, but in reality, they never always turn out to be the best for reasons not too far from lack of best judgements and priority. Yet governors in almost all the states in Nigeria are always found on the easy lanes when making decisions for their states and people they govern.
With a debt figure of $1,446,968,827.85 for Lagos, $232,097, $155.45 for Kaduna, $213,954,599.08 for Edo, $168,501,080.08 for Cross River, $116,391,687.55 for Enugu, $106,800,468.91 for Bauchi, $106,249,326.78 for Ogun, and $100,951,841.29 for Abia, these eight states are clearly leading on the list of states with so much monies borrowed on behalf of their states.
And while some of them have continued to pile up these debt stocks in the name of seeking funding for infrastructure developments, it is a no-brainer that they are further binding their states and next generation of leaders to financial obligations that would take years and efforts to repay after they (current leaders) would have left offices.
Though some of the financial debts that are tied to the books of the states were not necessarily incurred by their current governors, nevertheless some of the governors in this current dispensation have however made good their efforts to continue to increase the debt profiles of their states.
Freely, these governors would often claim they are borrowing to fund infrastructure projects in their states, yet these projects have mostly come to be uneconomical and never really useful to the state, talk less of generating incomes to repay the loans obtained to build them.
In a recent report released in Abuja by the World Bank, it was stated that though Nigeria had gone past the economic recession it slipped into in 2016, there were still a couple of economic challenges that are deep at her subnational levels.
Indeed, the subnational levels are where real issues of governance should be concentrated and pushed to ensure citizens derive maximum benefits considering that it is at the state levels that the ordinary people reside, yet this level still lacks the desired good governance.
However, the World Bank bi-annual report noted that increasing debts and fiscal deficits were rampant amongst states in Nigeria, and that debts of the states increased from 2.4 per cent in 2014 to four per cent of their Gross Domestic Product (GDP) at the end of 2016, while their fiscal deficits rose from an estimated 0.2 per cent of their GDP in 2014 to one per cent in both 2015 and 2016.
“The states’ fiscal crisis led to two sets of financial assistance packages by the federal government. The second – the Budget Support Facility (hinged on a 22-point Fiscal Sustainability Plan) – was advanced in mid-2016 and due to close in mid-2017.
“While all states have made progress on the reform measures included in the 22-point Fiscal Sustainability Plan, implementation is incomplete. The need to strengthen fiscal performance through sustaining the state fiscal reforms that have been accelerated in the past two years is of paramount importance,†said the bank in a statement announcing the report.
Clearly highlighting the absence of fiscal prudency amongst the states, the report also appeared to indicate that the states were finding it difficult to plan well for their economies and sustenance, thus lending credence to claims by experts that most of the governors are largely lazy and not resourceful.
“In the light of the continuing fiscal pressures, there is a strong need to strengthen the performance of the states through the full and sustained implementation of reforms to increase internally generated revenues and state spending efficiency, and to strengthen state debt management and fiscal transparency,†warned the World Bank Lead Economist for Nigeria, Ulrich Bartsch in the report.
Following from this, it has become obvious that at the point state governors negotiate and contract foreign loans to fund projects or plug gaps in their annual budgets the impacts of such debts on the future of their states are hardly considered especially from a broader perspective of economic returns or opportunity costs to the state.
Usually, the decisions to take these foreign loans have been found to be made exclusively by the state governors and then rubberstamped by the state assemblies without detailed appraisals to determine really the economic basis for the loans.
Further, in granting approvals, the state assemblies often rely on the economically pedestrian explanations tendered by the state governors, and which, on many occasions failed to justify, or make sense of the choices the governors impose on the state.
Additionally, in making these decisions, priority considerations are exclusively given to the desire to borrow to fund gaps in government’s revenue for expenditure in a fiscal year. However, while borrowing from multilateral sources to fund budgetary gaps comes pretty easier to the governors, viable instances or sources of funding these gaps like prudent fiscal measures and resourceful internal revenue generation initiatives which do not necessarily lead the states to debts, are ignored. Indeed, very few governors want to roll their sleeves to genuinely work for their states, they would rather wait to cash in from the federation purse and disburse.
As confirmed by the World Bank report, states have largely remained fiscally irresponsible with their resources. And, if this is the case, it thus puts into question their capacity to prudently manage loans they borrow from multilateral agencies.
The Excuses
In 2015, the Senate on the request of President Muhammadu Buhari and its former governor, Mr. Adams Oshiomhole, approved a $75 million World Bank loan to support Edo State’s Development Policy Operation (DPO). The loan as was learnt then was to help enhance private sector development, improve facilities for increased internal revenue generation and increase private investment and employment opportunities in the state.
Also at that time, instead of putting forward a sound economic justification for seeking the loan, Oshiomhole, rather resorted to needless political mudslinging and accusations of the opposition Peoples Democratic Party (PDP). He reportedly stated then that the state was forced to take a World Bank development loan because the PDP-led federal government plundered the nation’s treasury and subsequently pauperised states like Edo.
Similarly, Kaduna state recently defended its request of an additional $350 million loan from the World Bank, saying it would be used to refurbish schools. Despite being the second most indebted state after Lagos in Nigeria, the governor, Mr. Ahmed El-rufai, stated it has a sound financial footing and was recognised by the World Bank to be stable and able to repay the loan.
“The World Bank has scrutinised Kaduna State and they are convinced we meet their standards. We have healthy Fitch ratings ‘B’ Credit Rating with stable outlook. The World Bank checked our laws, our accounts and our performance, they are convinced we merit their support.
“Our commissioners have appeared before the relevant committees of the Senate and the House of Representatives, and presented detailed explanations for the rationale and the purposes of the loan. Our delegates were commended for the quality of their presentations. Nobody in those committees of the National Assembly can honestly claim not to be aware of the justification and the purpose of the loan,†El-rufai, stated in defence of his government’s actions.
In the same vein, the Sokoto State governor, Mr. Aminu Tambuwal, in defence of his government’s approach to the World Bank for loan, stated: “The declaration of state of emergency in the education sector is still on course. Take your time and go to the Shehu Shagari College of Education and Sultan Abdulrahman School of Health Technology, what you will see there is a state of decay of infrastructure.
“The general state of infrastructure like libraries, laboratories and classrooms are in state of dilapidation in a lot of schools and this is because these concerns were not addressed in the past. If you remember that I recently received the report of the technical committee on the needs assessment of about 400 schools in Sokoto and we need about N47 billion to turn them around.
“I can tell you that we have no less than 2300 schools comprising primary and secondary in the state. This estimate is only covering about 400 schools. The funding gap is very high. We are approaching World Bank to see how we can get funding. We are aware of the level of dilapidation in the schools but we need a lot of resources to fix them. The general infrastructure of these schools such as laboratories, libraries, teachers’ accommodation, hostels are in dire need of attention.â€
But while loans pile up, considerations must be given especially by state assembly members that the governors would leave their positions someday, and leave the states with accumulated debts to deal with.
Borrowing not Necessarily Wrong but…
Though borrowing to finance government’s projects or expenditure is in itself not a bad decision, however the choice of beneficiary projects or expenditure items, repayment plans and servicing terms, are amongst other considerations that should determine how economically sound it is for a state to borrow to finance its expenditures, or in most cases, continue to borrow.
Nowadays, it must be stated that state governments have rather taken to borrowing from both local and foreign sources to finance deficits in their annual budgets too easily, and while this practice has become a norm, its impacts in terms of economic growth and attainment of major macroeconomic goals have been found to be failing.
If a state borrows money to fund an agricultural innovation programme, and manages it well, its impacts on its economy would no doubt be obvious in terms of food security, returns in revenue and broader employments. Same goes for borrowing to fund education. But when a state’s borrowings are hardly felt by its citizens, then questions about priority comes into play.
Today in Nigeria, very few citizens would in every sense of the truth dispute existing facts and figures on poor governance indices of most of the states with very high debt profiles. The truth remains that employment and private sector participation in the economies of these states have hardly been improved on, in addition to good governance steadily eroding them.
It is difficult to explain the fact that schools in some of the states had remained shut for months on account of debts to teachers and that unemployment figures have continued to hit their roofs. If indeed these basic development indices are false, then figures released in June 2017 by the National Bureau of Statistics (NBS) for the 2016 fourth quarter national unemployment rate and which indicated a 14.2 per cent rise in unemployment in the country would also be called to question.
While there are records to show that Nigerian states have often borrowed monies to pay salaries or to fulfil irregular consumption purposes, as against borrowing to invest in reasonable infrastructure projects, education and agricultural innovations, there are also questions of transparent use of the loans taken, and which unfortunately is almost non-existent in most of the state.
Quote
States have largely remained fiscally irresponsible with their resources. If this is the case, it thus puts into question their capacity to prudently manage loans they borrow from multilateral agencies.
