States’ Debts Exceed 50% of Their Annual Revenue, Warns FRC

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Lagos, Osun, C’River lead states with highest debt to revenue ratio
Chineme Okafor in Abuja

The 2016 Annual Report of the Fiscal Responsibility Commission (FRC) has disclosed that most states in Nigeria now have financial debts that are more than 50 per cent of the annual revenues they get.

The report stated that in 18 states, their debt profiles have already exceeded their gross and net revenues by more than 200 per cent, while that of three states comprising Lagos, Osun and Cross River States were between 480 and 670 per cent of their gross revenue.

Released in Abuja by the FRC, the report noted that the debt levels of the states were contrary to the guidelines of the Debt Management Office (DMO) on debt sustainability.

The DMO guideline stipulates that the debt to income ratio of states should not exceed 50 per cent of their statutory revenue for the preceding 12 months, but the FRC report indicated that most states have gone past this threshold.

According to it, as at December 31, 2016, the states with the highest debt to gross revenue ratios were Lagos which has 670.42 per cent; Osun – 539.25 per cent; Cross River – 486.49 per cent; Plateau – 342.01 per cent; Oyo – 339.56 per cent; and Ekiti – 339.34 per cent.

It added that Ogun has 329.47 per cent; Kaduna – 297.26 per cent; and Imo – 292.82 per cent, while Edo has 270.8 per cent; Adamawa has 261.96 per cent; Delta has 259.63 per cent; Bauchi has 250.75 per cent; Nasarawa has 250.36 per cent; Kogi has 221.92 per cent; Enugu – 207.49 per cent; Zamfara – 204.91 per cent; and Kano – 202.61 per cent.
FRC explained that the debt to net revenue ratio of the states has placed some of the states in precarious situations, adding that the debt to net revenue of Lagos was 930.96 per cent, and that of Cross River, 940.64 per cent.

According to the report, only six states – Anambra; Borno; Jigawa; Kebbi; Sokoto; Yobe, and the Federal Capital Territory (FCT) Abuja, did not exceed the 50 per cent ratio.
Notwithstanding, the FRC noted that this should not be concluded that a state had over-borrowed on the ground that it has overshoot its debt to revenue ratio.

“It should be noted that the fact that some states exceeded the threshold of 50 per cent of their total revenue is not an indication that they over-borrowed as the debt limits of the governments in the federation are yet to be set.
“Furthermore, only total revenue is used for the foregoing analysis as comprehensive data on the states’ Internally Generated Revenue (IGR) were not available,” it explained.

The FRC added that: “Therefore, there is a need for each of these states to work towards bringing their respective consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee a general public debt sustainability in the country.”

In 2017, the Nigeria Extractive Industries Transparency Initiative (NEITI) raised the alarm over the debt burden of the 36 states of the federation which it said had risen to over N3.342 trillion as at December 2016.
NEITI then explained that Lagos, Delta, Osun and Akwa Ibom topped the debt chart with a total debt profile of N1.262 trillion which represented about 38 per cent of the debts owed by the 36 states of the federation, and that Lagos was indebted to the tune of N603.25 billion, while Delta owed N331.95 billion, and Osun and Akwa Ibom had debt of N165.91 billion and N161.23 billion respectively.