More states wallow in debt

.           Edo, Lagos top list

By FELIX OLOYEDE

With states’ debt growing at double digits, while their internally generated revenue crawls at single digit, states in Nigeria have to urgently reverse this trend if they intend to fulfill their mandate of improving the lives of their citizenry.

The State of States, the 2017 edition recently released by Budgit, a social enterprise, which employs technology to crisscross civic engagement and institutional reform, showed that while states’ debt grew at an average rate 22.16 per cent between 2012 and 2016, their  internally generated revenue maintained average growth rate of 9.04 per cent during this period. This has left most states over leveraged.

According to the report, Rivers State tops the list of Fiscal Sustainability Index with an average of N16.27 billion revenue monthly and with N7.10 billion coming for internally generated revenue (IGR)in the first six months of 2017 and a debt profile of N142.4 billion domestic debt as at December 2016 and $66.44 million foreign debt as June 2017.

It was ahead of Lagos State, which ranked second with average monthly revenue of N32.18 billion with IGR contributing 78.31 per cent of this revenue (N25.2 billion) between January and June this year, but with a debt burden of N311.76bn locally and $1.45 billion in foreign loan. However, the state has been investing heavily in infrastructure, which may be generate revenue in the short to medium term for it to repay its loan obligations.

And Ogun and Kano ranked third and fourth in the fiscal sustainability index respectively.

“Rivers’ Debt profile stood at N157.2bn at the end of 2016. Lagos’ massive debt and expansive recurrent expenditure profile weighed down on its internally generated revenue performance. Ogun state, despite running a recurrent budget deficit, is up on the fiscal sustainability index due to the rapid growth in its internally generated revenue. However, Ogun’s debt profile is equally increasing, which could weigh in on its performance in future,” the State of States report declared.

A lot of states have marked out their IGR, leaving them with little room to raise revenue internally, says Andrew Esene, research analyst, Futureview Financial Services Ltd. He explained that the debt obligations of states were worsened by the fall in crude oil price, which reduced drastically the revenue they get from federal allocation.

“If states are already having issues with meeting their recurrent expenditure, we may not see a lot of improvement is capital outflows,” he noted.

“State’s debt has risen above the rate of increase in IGR. It only means that state governors are over leveraged. But the current situation with the state is not different from the scenario you just projected. What is even worrisome is the fact that the debts have been spent on consumption, that is in most cases for the payment of salary or even simply misapplied,” said Boniface Chizea, Managing Consultant, BIC Consultancy Services Limited.

“The bailout funds and the Paris refund are mere palliative not expected to solve the problem in a sustainable manner. This is one more reason we should take the agitation for restructuring seriously. We have to evolve a system that would create competition amongst the states to be aggressive and competitive in being self-reliant. Otherwise the problem would only worsen and get compounded.”

Osun state which was least in the Fiscal Sustainability Index has halved its workers’ salaries since April 2015. The state’s average monthly net statutory allocation between January-July, 2017 was -N183.12 million; its IGR stood at N8.88 billion as at December 2016, while the state’s domestic debt was N147.07 billion and external debt was $70.53 million.

Attempts to speak to the Director, Bureau of Communications, Office of the Governor, Osun State, Mr. Semiu Okanlawon, was futile as his mobile number was not going through and he did not reply the text message sent to him.

Since 2014 when the oil price started declining, many states in Nigeria have been having challenges meeting their recurrent expenditures. In June this year, about 16 states were owing their workers several amount of salary arrears despite N1.75 trillion extra-statutory bailout they got from the Federal government.

Kogi State which was ranked 17^th in the Fiscal Sustainability Index, topped the list of states owing salaries with 15 months salaries arrears unsettled. Last week, senators had to donate 1,000 bags of rice to the state’s civil servant to ameliorate challenges after a director committed suicide.

Mr. Victor Ukpai, Credit/Market Risk Analyst at Stanbic IBTC Pension Managers Limited believed the rising debt profile of many state governments would impede their abilities to execute capital projects and added that this would further impoverish the citizens of these states.

“The state governments would continue to live by the mercies of the Federal Government, which bring about a lot of protest and agitations in every part of the country, meaning that the call for restructuring won’t end yet”.

According to him, most of the states in Nigeria are not viable. “The challenge is that the levels of economic activities in most of these states are still very low, because industries are not sited there,” Ukpai added.

There was concern that some of the borrowed funds were used by state governors to finance elections and as the 2019 general elections draw closer, some states are likely to borrow more.

Lagos which has the highest debt burden is preparing to raise fresh bond before the end of the year. When Habib Haruna, Chief Press Secretary to Lagos State Governor was contacted, he said he was in a meeting and requested that text message be sent to him, which was sent to him, but he didn’t respond as at the time of filing this report.