DESPITE warnings by the Debt Management Office (DMO) and the Fiscal Responsibility Commission (FRC), statistics have shown that many states have exceeded the 50 per cent threshold of their total annual revenue as stipulated in the guidelines on debt sustainability. Also, not less than 18 states had exceeded their gross and net revenues by more than 200 per cent in the last three years.
The latest report shows that the 36 states of the federation and the Federal Capital Territory (FCT) owe over N5.8trillion out of Nigeria’s total debt stock of N25.7 trillion. Experts are of the view that the challenge most of the states face is not that they have over-borrowed, but their inability to raise revenue and be less dependent on the monthly federal allocation. There are strong indications that most of the states will go bankrupt without the monthly allocation from Abuja.
Three states with the highest debt to revenue ratios are Lagos (640%), Osun (539%) and Cross River (486.5%). Other states battling high debt stock are: Plateau (342%), Oyo (339.5%), Ekiti (339.3%), Ogun (329.4%), Kaduna (297%), Imo (292%), Edo (270.8%), Adamawa (262%), Bauchi (250.75%), Nasarawa (250.3%), Kogi (221%), Enugu (207.4%), Zamfara (204.9%) and Kano (2202.6%).
From the foregoing, it can be deduced that the financial situation of most states is precarious unless they diversify their economies and broaden their revenue base. The debt profiles of the states could also be an impediment to the actualisation of dividends of democracy. Their present financial situation is made even worse by the decline in the monthly federal allocation to the states.
Besides, the high debt stock of many states may impede the realisation of their 2020 budgets’ estimates and implementation. According to the NBS report, the only states whose debts have not exceeded the 50 per cent threshold by more than 100 per cent are Anambra, Borno, Jigawa, Kebbi, Sokoto, Yobe, and the FCT. However, their Internally Generated Revenue (IGR) remains small to guarantee their debt sustainability or fund their budgets for 2020.
In the same vein, the Nigeria Extractive Industries Transparency Initiative (NEITI), BudgIT and the Economic Confidential have expressed concern that in view of the high debts accumulated over the years by the states and their low IGR, coupled with debt servicing in their 2020 budgets, many of them may not be able to implement the N30, 000 new national minimum wage. If that happens, workers may embark on strike in the coming months in many of the states. Except Lagos, Ogun, Rivers, Delta and Kwara states, Edo, Yobe and Kano states, the rest do not have more than 20 per cent from their IGR, and may not have the financial muscle to meet their obligations.
Undoubtedly, the era of over-dependence on federal allocation may be coming to an end. This means that states that depend on the monthly handouts from Abuja may be walking a tightrope. We, therefore, urge the state governments to be prudent in the management of their revenues and be innovative in finding alternative revenue sources such as diversification in agriculture and exploitation of solid minerals within their domains, especially now that the Federal Government is considering liberalising the exploitation of solid minerals.
The time has come to revisit the issue of fiscal federalism through a meaningful restructuring that will allow the states to control their natural resources. The future survival of the debt-trapped states will depend largely on the ingenuity of the state governors and their policymakers to think out of the box.
It has also become necessary for the state governments to adhere strictly to the provisions of the Fiscal Responsibility Act, especially Sections 44 and 45, which stipulate conditions for borrowing. Equally important is the need for the states to cut their cost of governance.
There is no justification to continue to pay outrageous salaries and other pecks to political office-holders when the economy cannot afford to carry such hefty emoluments. The present dire financial situation of most states could be reduced if the governors borrow cautiously and spend prudently.
The fact that many of the states have exceeded the threshold of their total annual revenue does not mean that they have over-borrowed, it is a sign that they may get into debt crisis if they fail to set their priorities right and generate more revenue. Therefore, there is need for the affected states to work towards bringing their consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee public debt sustainability.