Experts worry over crippling effect of N7trn debt

By OKEY ONYENWEAKU

Investors are expressing increasing anxiety as Nigeria’s fiscal position appears to be worsening on the back of recent revelations that the Federal Government has a huge subordinated (below the budget bottom line) debt of N7trillion. Some of this debt includes unpaid state claims for expenditure on behalf of the Federal Government but which have not been redeemed.

The states whose economies have been tipping over from bad to worse in recent times and have been unable to meet their recurrent salary obligations to workers  have hinged their survival on recouping the monies they have spent in carrying out Federal Government projects.

Already state governors held a meeting with President Mohammadu Buhari to ask him to refund these monies. Last week, governors elected under the APC had met and asked for bail out by the federal government.

Hallmark newspaper’s investigations into the fiscal profiles of the different states shows that the FG owes almost all the 36 state governments including the authorities in the federal capital territory (FCT) about N300 billion.

For instance, Lagos State claims that FG owes it about N100 billion which was spent on a variety of projects ranging from road repairs and reconstruction to the on-going expansion of the Lagos-Badagry Express way which is a part of the continental trans-Sahara Highway.

Similarly, Akwa Ibom State is asking to be repaid the N30billion it spent on FG projects in its State.

Other State governments are also claiming amounts ranging from N10bn to N20bn they have spent on FG projects to enable them pay salaries to their workers.

The States insist that their own survival or sustenance is hinged on the quick refund of the monies owed them by the federal government in order to pay salaries to civil servants as well as be able to carry out other capital projects.

“We all know that the economy of the country is in a bad shape.

So, what we suggested and agreed on was that a number of state governors have executed various projects for the Federal Government.

So, instead of looking for that (bailout), let us ask the Federal Government to settle that backlog owed us so that we can move forward.

“In nearly all the states, you may have N10bn to N20bn owed.  Like in Lagos, more than N50bn was spent on federal projects that have yet to be settled.

So, if we can get that done, then most of the issues can be resolved in earnest. So, we are seeing the President next week,” Governor of Zamafara State, Abdulazeez Yari , said after Governor’s forum.

At the meeting yesterday, the president lamented about the poor state of the economy and dismissed any chance of a bail out but promised to pay genuine claims made by the states. He also promised to recover looted funds from the past government.

Unfortunately, Nigeria’s revenue has been on the plunge in recent times given the fall in price of crude which is the major revenue earner for the country.

Crude oil still sells below the budget benchmark of $62 per barrel, an indication that there will be serious challenges ahead. Last week Nigeria’s Brent crude fell to a decade low Saudi’s new offer to India to sell FOB – free on board.

As a result, the government saw its revenue fall 21.5% to N315.04 billion ($2 billion) in March due to lower oil prices as well as trunk and pipeline shutdowns. Nigeria’s Accountant General Jonah Otunla also noted that some of it was due to lower earnings from the non-oil sector.

Analysts fear that the debt will further compound the problems of the federal government which has resorted to borrowing to fund its 2015 budget. It was revealed recently that the last government had borrowed N3 trillion from the Pension fund to pay salaries.

The N4.493tn budget for the 2015 fiscal year was passed on $53 benchmark.

The Senate, in passing the budget, had slightly reduced the N2.6 trillion proposed by the executive as recurrent expenditure and simultaneously scaled down the capital expenditure from about N642 billion estimated in the proposal to about N556 billion.

For an economy that is seen as the largest in Africa at $540 billion GDP, there are doubts of its sustainability with all the challenges of Budget deficit, depreciating naira, rising debt and rising inflation currently at 9 percent.

” This time, the debt is not necessarily to foreign creditor institutions/governments which are organized under the Paris club but largely to private agents which is even more volatile. We call it domestic debt.

But if one carefully unpacks the bond portfolio, what percentage of it is held by foreign private agents? And I understand the Government had removed the speed bumps we kept to slow the speed of capital flight, and someone is sweating to explain the gyrations in foreign reserves”, former CBN governor, Prof. Chukwuma Soludo had said in an article recently.

Dr.Afolabi  Olowokere of the Financial Derivatives Company limited believes that the federal government may not be able to pay such debt now given her own economic condition which is not looking very good. He said that even if FG would refund such debt it has to analyse the projects and come up with reasonable valuation for them.

However, Olowokere fears that the Federal Government may not have gone into any agreement with the States governments to do those projects on its behalf, adding that there may not have been any clear documentation of the works.

At this point, he said FG may not have even made provision for those projects in the budget.

A financial analyst Dr. Richard Mayungbe said there should be nothing to fear about as FG can analyse the debt and find solution given what obtains in other climes and how similar issue was handled in 1983 in Nigeria here when FG was neck deep in debt.

He stated that the Federal Government could refund the States the monies instead of lending funds to them.

Even though the development will increase the debt hanging on the neck of FG, Mayungbe said the debt could be rescheduled and spread across 10 years with milder interest rates.

Two days ago, the transition committee put in place by President Muhammadu Buhari to work with the former administration of President Goodluck Jonathan for a smooth handover of power on May 29, had raised the alarm that the previous government left behind a N7 trillion liability for the current regime.

President Muhammadu Buhari also confirmed this yesterday when he said President Jonathan left huge debts, empty treasury and the declining economy for him.