Growing Concerns over States’ Debts

0

There appears to be a mismatch between the growth rates of debts incurred by state governments in Nigeria compared to the level of revenue they generate internally, and there are concerns they will not be able to sustain the repayment plans, given that locally generated revenues that should serve as buffers are not increasing at sustainable rates, reports Bamidele Famoofo

Analysis of figures provided by the National Bureau of Statistics (NBS) on Internally Generated Revenue (IGR), by the state governments and the Federal Capital Territory (FCT), showed that the second tier of government in Nigeria were able to grow IGR by paltry 0.03 percent or N239billion in fiscal year 2018. Total IGR in 2018 stood at N1.17trillion from N931.23billion in 2017.

Total revenue available to states including the FCT in the review fiscal year amounted to N3.74trillion. The aggregate revenue was buoyed by a 44 percent increase recorded in the monthly allocation the states receive from the federation account, which was N2.57trillion in 2018 as against N1.79trillion shared among the states in 2017. The total revenue available to states in 2018 increased by 39.6 percent or N1.06trillion from N2.68trillion realised in 2017.

But as total revenue increased, buoyed mainly by money distributed to states from the federal allocation accounts and a marginal growth in IGR, total debt incurred by all states and the FCT increased to N8.08trillion as at end of 2018. Local or domestic debt accounted for 52.4 per cent of total debt as at 2018 while foreign debt was 47.7per cent.

Revenue/Debt Analysis

There are however certain states that are more indebted than the others. Lagos State tops the chart with total debt of about N1.04trillion as at December 31, 2018. The state which is fondly referred to as the commercial capital of Nigeria still maintains its status as the leading revenue generating state in Africa’s largest economy. The state had total revenue of about N501billion for use in 2018, accounting for 13.4 per cent of aggregate states revenue available for use in 2018. IGR accounted for over76 per cent of Lagos state total revenue in 2018, increasing from N334billion in 2017 to N382billion in 2018.

Rivers State, which came next to Lagos in the highly indebted states chart had total revenue of N285billion, which was in excess of its total debt as at end of December 2018. Total debt according to figures supplied by NBS for Rivers state stood at N254billion. But IGR accounted for only 39.6 per cent of the state’s total revenue in 2018 while cash from the federation accounts and oil derivation accounted for more than 60 per cent of the balance. However, the oil -rich state from the South-south region increased it’s internal revenue base by 26 per cent or N23.3billion from N89.5billion in 2017 to N112.78billion in 2018. Rivers State accounted for 7.8 per cent of the total revenue available to all states in 2018 followed by Delta State with 7.3 per cent.

Delta State, a major oil-producing state in the Niger-Delta region was number three on the debt list in 2018 with about N252billion. It only increased its IGR by about 13.0 percent or N6.6billion in 2018 as IGR moved from N51.9billion in 2017 to N58.4billion in 2018. Meanwhile, total revenue available to the government of the state in 2018 was N20billion in excess of its total debt in 2018. Total revenue available for the use of the state in 2018 amounted to N272billion compare to a debt of N252billion in the same period.

Among states with debts picked randomly from the six geo-political zones are Edo, Kaduna, Bauchi, Akwa-Ibom, Taraba, Borno and Yobe.

Edo state has a total debt of N189billion as against total revenue of N98billion as at end of 2018. IGR in the state increased by 12 per cent or N3.09billion from N25.3billion to N28.4billion.

Kaduna is having N167billion in its kitty as total debt while total revenue stood at N98billion as at end 2018. The state grew IGR by 11 per cent or N2.92billion from N26.5billion in 2017 to N29.5billion.

Others Include Bauchi with a total debt of N141billion as against a total revenue of N63.7billion with IGR standing at N9.7billion, moving up by 122 per cent from N4.4billion in 2017.Akwa Ibom raised IGR by 52 percent to N24.2billion in 2018. The state’s debt portfolio stood at N215billion as against total revenue of N227billion as at December 2018.

Taraba, Borno and Yobe are owing N69billion, N76billion and N38billion as against total revenue of N54billion, N70billion and N57billion respectively. Among the three, Borno did better in IGR generation, recording 31 per cent revenue growth from about N5.0billion to N6.5billion. Taraba and Yobe recorded IGR growth of 3.7 percent and 22 percent respectively in 2018.

Analysts

A former Deputy Governor of the Central Bank of Nigeria who does not want his name mentioned told THISDAY that the country has witnessed progressive growth in debt stock in the past 12 years. “We must move very quickly to slow down this growth so that we do not overburden the next generation with the yoke of debt repayments,” he said.

He said one of the ways out of the rising debt in the country was for government to reduce the share size of its structure. His words: “The share size of government structure is too high at the federal and state levels. The old Western Region (pre 1963) consists of eight states. Awolowo ruled the entire region from Badagry to Asaba with a cabinet size of not more than 10. Today, the eight states probably have over 200 combined, with cars (mainly Jeeps) for all of them and countless number of aids. No wonder they no longer have enough funds to build schools, buy drugs, build roads etc. We need to trim down the size.”

The former deputy governor also advocated government to provide the enabling environment to attract global capital as he said government alone could not fund infrastructure.

“We should widen the tax base to be less dependent on borrowing. We should not however increase tax rate but widen the base to put more on the tax net and improve on compliance and government should be held more acceptable by the electorates,” he submitted.

Former Executive Director at Nigerite Plc, Engr. Yemisi Shyllon, said, “We should look more at the solution derivative content of our debts and question whether the debts were wisely spent on viable and/ or citizens standard of living and happiness projects.”

Shyllon argued that ratios, as quoted, in comparison with the ‘sane’ economies can be very deceitful.

“Firstly, when those countries measure their debt performances, they are done in the belief that debt funds have been widely applied and not as compared to ours, where the bulk of the debt funds do not end up being used here to aid development or enhance living standards or build economic multiplying infrastructure or educational development or welfare enhancement of our people. No. None of these or very low percentage of these happens. We all suspect that in no time, the so called debt funds end up at where they initially came from, in the private pockets of individuals. Yet our existing national assets/ economy gets charged for the repayment of both principal and interest of debt funds,” he lamented.

“This is why the ratio of debt/GDP is an unfair ratio for measurement here. We want to tax more and more, the few taxable ones at the expense of attracting more investments into our economy? Why are we not exploring more of consumptive taxation, which covers far more reaching dragnet, and cheaper to administratively apply and is more equitable? There is generally, a limit to which any institution or government can borrow,” he posited.

Experts said Lagos, with IGR of about N40billion per month should be able to service the current debt profile. “They are also smart that the bulk of the borrowing is in local currency. Government should only borrow to provide physical and social infrastructure.”

They also submitted that borrowings should be tied to capital projects with significant value addition, noting that the efficiency of expenditure should also meet global standards.

“I will also prefer long-term funding through the capital market as the existing capital market rules will impose good behavior and transparency on the government,” the former deputy governor opined.