ENGAGE NIGERIA – JUNE 6, 2019
Rising Debt Profile of States: Looking Beyond Borrowing
In Nigeria, total foreign and domestic debts have been on the rise for the past 8 years. While the Nigerian Government maintains that the country’s 24trn debt is sustainable, the International Monetary Fund (IMF) has decried at several times that Nigeria’s debts profile is worrisome. But more worrisome and cause for concern should be the rising debts profile of many states in Nigeria.
States’ debts are rising faster than abysmally low IGR – The National Bureau of Statistics (NBS) recently released data for Internally Generated Revenue (IGR) for the last quarter of 2018, which shows that total states’ IGR amounted to N1.16trn in full-year 2018. Similarly, the total statutory allocation received from the Federal Government by all states of the federation in 2018 was 2.56trn. The cumulative figure of IGR and statutory allocations indicate that all states generated a total of N3.72trn in 2018. On the contrary, the total debts for all the states stood at 3.85trn in 2018. This implies that total debts across states are 3 percent higher than the total revenue generated across states. That means the states economies are sinking.
Lagos State has the highest foreign debt profile among the thirty-six states and the FCT accounting for 5.64% while Edo (1.09%), Kaduna (.0.90%) and Cross River (0.75%) followed closely.
The impact of government’s debts size on a country’s economic growth has been widely debated, thereby generating rows among economists and policymakers. Government incurs a budget deficit when its total expenditure outlays the total revenues. While government can finance its expenditure through taxes, borrowing is also another way to do that. However, borrowing produces follow-up costs in form of interests and possibly principal payments in future fiscal years. Hence, persistent borrowing to finance budget can hamper economic growth.
Nigeria’s Debt Policy – According to Nigeria’s debt management strategy (2016-2019), borrowing (both domestic and external) are expected to be used to fund priority infrastructure projects, which will boost output and put the economy on the path of sustainable growth and competitiveness. However, some states have actually borrowed to fund recurrent expenditure. The Fiscal Responsibility Commission (FRC) stated in 2017: “By law states are not allowed to borrow more than 40% of their Internally Generated Revenue, to allow for the remaining 60% be used to run their states”
According to the Debt Management Office (DMO) which was established in the year 2000 to centrally coordinate the management of Nigeria’s debt, 23 States exceeded borrowing limits – It was disclosed by the FRC in 2017, that contrary to the guidelines of the DMO on sub-national borrowing, 23 states of the federation exceeded their borrowing limits in 2015.
FRC reported that Lagos, Kaduna, Cross River, Gombe, Ekiti, Edo, Ondo and Imo states had borrowed more than 50% of their annual statutory allocations by 2015. Other states in the same boat are Zamfara, Adamawa, Oyo, Abia, Ogun, Taraba, Kebbi, Enugu, Bauchi, Nasarawa, Kano, Benue, Kwara, Katsina and Sokoto.
It was further stressed that when total revenue (gross statutory allocation plus Internally Generated Revenue) was used as the yardstick for measuring the level of indebtedness of the states, a total of 20 states borrowed more than their total revenues in 2015.
Despite exceeding the borrowing threshold, several states still owe salaries without major developmental projects. Politicians who find themselves at the seats of powers at states level need to know that they are sinking their respective states if they see borrowing as a means to an end.
The incoming state governors whose states are already decked in debt beyond the approved threshold should as a matter of priority devise means to improve their states economic outlook and bring in financial and economic experts into their cabinet to manage and devise strategic means to increasing their IGR.
These states should only result to borrowing when it comes to creating enabling environment through infrastructure development such as would drive FDI and increasing productivity. Efforts should be concentrated on developing the capacity of the citizens, through education investments, entrepreneurship development, agricultural asset growth, financial empowerment for SMIES by partnering with commercial banks, and also come up with policies that promote Ease of Doing Business such as will encourage public private partnerships for infrastructural development. Fiscal policies should not encourage borrowing for recurrent expenditure but for growing capital base of the states.
The states in Nigeria should drive private sector driven economies. A case for study is the economic transformation policies of the current Ondo State government under Barr. Rotimi Akeredolu SAN. The Governor has launched a policy document highlighting details and procedures of short-term, medium-term and long-term economic development plan for Ondo state. The policy focuses on the socio-economic transformation of the state especially in employment generation, enterprise development in agriculture, retail and light industrial growth. Ondo State is poised to become the best agriculturally driven economy in Nigeria by the year 2024. His policy is a statement of intent about the opportunities and priorities the state will pursue to deliver growth and get the state working to its fullest capacity.
Private sector players in agriculture sector, power sector, financial sector, mining, enterprise development, education, infrastructure development and manufacturing sectors have ample opportunities to partner with state governments that are open for business. Borrowing should no longer be the concern of states in Nigeria especially the poor economy states who can now bring in private sector players and multinational institutions in unearthing hidden opportunities abound in their states.
Debt Management Office