By Okechukwu Onyenweaku
One of the most disturbing problems plaguing Nigeria today is the huge debt overhang. As event of the days unfold, the country’s total documented debt stock is put at N33trillion and is expected to hit N40trillion at the end of 2021 because the government is still accumulating new debt. What has become more worrying is that the country is running into a hitch with servicing the huge debt. As at today the country spends over 91% of its revenue to service debt.
The Nigerian national basket case is similar to the grave conditions of the states also. In recent times, the 36 states of Nigeria have also found themselves neck deep in debt. The states have ,in fact, been struggling to survive given that only a few of them can pay salaries as and when due.
According to a document released by the Debt Management Office in March 31, 2021, states were owing as much as N4.12trillion. This is different from other debts owed by these States that have not been officially documented.
Looking at the debts of the individual states, Lagos State is the highest debtor with N507.37billion, Rivers State followed with N260.93billion, Akwa Ibom owes N232.20billion while Delta States is owing N213.78billion.
In the second category, Rivers State is indebted to the tune of N162.34billion, Ogun State N156.33billion, Imo State N149.88billion, Bayelsa State N142.93billion Plateau State N134.22billion, Osun State N133.92billion, Benue State N128.25billion and Kano State N119.42billion.
In the third category, Bauchi States owes N100.79billion, Taraba State is owing N100billion and Zamfara, Adamawa and Borno States owe N96.980billion, N95.22billion and N91.855billion in that order. Ekiti is indebted to the tune of N83.473billion, Gombo State is struggling with debts of N82.473billion, Edo State has debt of N81.750billion, Ondo State N72.598billion, Abia State N70.570billion, FCT N69.532billion, Kogi State N68.860 billion, Enugu State N68.855billion, Kaduna State N68.754billion, Kwara State N63.243billion, Niger State N62.327billlion and Yobe State N60.094 billion. Equally, Anambra, Nasarawa and Katsina states owe N59.710billion, N58.671billion and N58.339billion.
Ebonyi States owes N43billion, Sokoto N38billion and Jigawa N31billion.
Unfortunately, as the debts on the shoulders of these states continue to expand, their internally generated revenues are shrinking given the harsh economic environment. The economy in the recent times have barely grown no thanks to the fluctuating price of crude and the ravaging effect of Covid-19 whose deaths have hit over 4million all over the world.
The bad situation seems to have been worsened by the fact that these states spend not less than 75 to 80 per cent of their revenues on recurrent expenditure with little or nothing left for capital expenditure.
Anxiety is rising as experts fear that huge debts eventually cause deep challenges for the debtor.
They argue that given the nation’s economic and infrastructure challenges, such as import of petroleum products, high exchange and interest rates, high unemployment, poor power supply and bad road network etc, high debt profile will not only create an overhang but simply strangulate the country and the states as the ability to repay may be seriously constrained.
As at today, the debt profiles of about 18 states exceed their gross and net revenues by more than 200 per cent.
In fact, the debt status of many states exceed the debt to revenue ratio by more than 100 per cent.
The debt to net revenue ratio of the states have put some of the states in even more precarious situations. In fact, observers say that most of them can no longer pay salaries and pensions as at when due.
What has even aggravated their debt challenges is the bailout fund which the federal government extended to them in 2016 and 2018. This fund that is estimated to be about N614billion was given to the states to enable them meet their financial obligations to their citizens.
The Federal Government, which had earlier planned to recover the funds in 2019 before the pandemic, has now started deductions from states for repayment of the budget support facility, amid an already strained relationship from deficit financing, shortfalls in its Federation Accounts.
States which are unable to increase their internally generated revenues, according to the latest data from the National Bureau of Statistics (NBS) as a result of the pandemic, may begin to default in payment of salaries. Of course, the development is reflecting a repeat of 2016 where nearly two-thirds of the 36 states struggled to pay civil servants’ salaries despite receiving a government bailout.
Research shows that already, about 23 States owe salaries and pensions. These states include Abia, Benue, Bayelsa, Kogi, Delta, Kaduna, Edo, Kwara, Nasarawa, Ondo,Ekiti, Imo, Oyo, Adamawa, Rivers, Plateau, Akwa Ibom, Taraba, Ebonyi, Cross River, Ogun, Zamfara and FCT Abuja.
Recently, too, BudgiT, a Nigerian civic organization that applies technology for citizens’ engagement with institutional improvement to facilitate societal change observed that about 13 of these states are already technically insolvent.
‘’States already face significant human development issues – poverty , unemployment underemployment, avoidable disease outbreaks (excluding COVID -19) and a host of third-world problems. To solve these issues, each state needs to, first and foremost, be a sustainable subnational entity – that is, the state is generating enough revenue to pay its workers , its creditors and still have significant left over to cover capital expenditure interventions for solving development issues.’’ said an analyst who would not want to mentioned.
Shrinking revenue has in fact, pushed some states to start cutting down on their workforce to be able to survive.
In May 2021, Kaduna state had cried out that it could not continue to spend over 90% of its FAAC inflows to pay salaries. As a result, the State sacked over 4000 of its workforce.
Addressing a press conference on the issue, Jafaru Sani, Kaduna commissioner of local government, and Bariatu Mohammed, head of service, said the state will not subject public policy to public outcry.
Sani and Mohammed said it is not sustainable for the state to continue to spend “84 to 96 percent” of its federation accounts allocation committee (FAAC) receipts on salaries and personnel cost as it has done since October 2020.
“This government was not elected to devote most public funds to paying government workers and treat that as its defining governance mission, to the detriment of developing the state and its people,” they said.
“In September 2019, the Kaduna state government became the first government at any level in Nigeria to pay the new minimum wage, along with consequential adjustments and it has continued to faithfully respect this obligation. It followed up by swiftly raising the minimum pension to N30,000 monthly for retirees on the old defined benefits scheme.’’
Governor Abdullahi Ganduje of Kano State has reverted to the former minimum wage of N18,000 for its workers.
While the state gave recession and pandemic as reasons for the action, no body knows if the state will revert to N30,000 again.
The DG, Debt Management Office, DMO, Patience Oniha said Nigeria’s debt profile was on the increase because of the impact of revenue crash and the crises trailing the coronavirus pandemic on the economy.
She regretted that borrowing which was already on the down ward trend in 2015 was rising again adding that the increased borrowing was intended to buoy the economy like other countries.
Oniha said, “The higher level of borrowing from 2015 due to the revenue crash occasioned by crude oil started trending downwards thereafter.
“Unfortunately, COVID reversed that trend. That became necessary and many countries including the UK and USA also embarked on new borrowing.”
States have over the years depended on Federal Allocation to survive given that their Internally generated revenues are small and can hardly do much. On the average, Faac contributes about 80% to the revenues of individual states while IGR contributes 20% and less sometimes except Lagos, Rivers and a few others states which IGR are higher.For instance, Nigeria’s states generated a sum of N1.31 trillion internally in 2020, representing a marginal decline compared to N1.33 trillion recorded in 2019, and an increase compared to N1.17 trillion in 2018.
Looking critically at the IGR per population for the six geo-political zones in Nigeria, South West takes the lead with an average of N13,966, having generated a sum of N561.01 billion and an estimated population of 40.17 million people. The South-South region followed with an average of N8,694 and a total aggregate IGR of N263.17 billion.
On the reverse, the North-Eastern region, which houses states like Bauchi, Borno, Yobe, etc. recorded the lowest IGR per population of N2,061 closely followed by North West with an average of N2,855.
Nevertheless, analysts fear that this trend may not change sooner or later given the precarious condition of the country’s economy.
Not many Nigerians are optimistic that the economy of the country has much to offer them given the excruciating pains pervading the environment and general state of affairs. While many believe that the politics of the country is incapable of creating enabling atmosphere to nudge the economy forward, others have listed mis-governance, insecurity, lack of productivity among others for losing hope in the growth trajectory of the economy.
The challenges are numerous, a former managing director of one of the big banks who would not want to be mentioned in print told Business Hallmark.
Despite the negative impact of Covid-19 which plunged Nigeria into recession in the second quarter of 2020, the economy grew by 0.11 per cent at the end of the fourth quarter; it grew by 0.51 in first quarter 2021 and grew by 5.1 in second quarter 2021 from -6.1 negative in 2020. Yet this does not change the pessimism of many who believe the economic managers and the government are not on the right path.
Going to deeper grounds, recent statistics reveal that the rate of unemployment, the second highest in the world is 33%. At the same time, the underemployment rate stood at 22%; even as inflation, which is hitting the roof top at 17.33 per cent is at its highest point in the last seven years.
At this rate, it is difficult to understand the magic the states would perform to turn around their distressed condition. It is a real crisis situation.