Despite warnings against borrowing beyond the stipulated threshold, it is worrisome that the total debt of state governments has reached N3.97 trillion. According to the Debt Management office (DMO), out of the six geopolitical zones, the South West had the worst domestic debt exposure of N1.04 trillion or 26.2 per cent. Lagos State topped the list of indebted states in the zone with N542.23billion. The South-South, N949.4billion; North-Central, N648.63billion; North-West, N485.39billion; North-East, N441.19billion; and the South-East had the lowest domestic debt burden of N305.67billion or 7.1 per cent.
The data also showed that domestic debt had risen from N1.7trillion in 2014 to N2.26trillion at the end of March 2019. Between 2014 and 2017, the domestic indebtedness of the states rose to N1.64trillion.
The rising domestic debt of the states is very disturbing. If nothing is done urgently to check the growing debt, it is likely to engender fiscal collapse of some of the states. No doubt, the debt trap has made many of the states to barely survive on the monthly allocation from the Federal Government. Even at that, most of the states are reported to be paying between N500million and over N1billion monthly to service the debt.
Due to the dire financial situation of many states, the Vice President, Prof. Yemi Osinbajo, had at the 20th Annual Tax Conference of the Chartered Institute of Taxation of Nigeria bluntly stated that it would be very tough for most states to survive without looking inwards.
In other words, the states would devise strategies to survive outside the federal allocations. We believe that Osinbajo’s position is still valid. Therefore, state governments should reflect on it and do the needful. They should work hard to increase their internally generated revenue.
We urge the state governors to diversify their economies through agriculture. It is not cheering that 15 states may face imminent bankruptcy. Recent reports from the National Bureau of Statistics and the Nigeria Extractive Industries Transparency Initiative (NEITI) support this assertion.
Data from the NBS showed that between 2017 and 2018, the 36 subnational governments’ Internally Generated Revenue (IGR) was not more than N1.3trillion, with Lagos State IGR exceeding that of 24 states put together. This implies that the states generate about 15 per cent of their revenues and look up to the Federal Government for 85 per cent of their financial requirements. With decreasing revenue to the federal purse arising from volatility in oil prices and recession-impaired cash collection, it is likely that the states may face tougher times ahead.
For the states to surmount the situation, they must strictly adhere to the provisions of the Fiscal Responsibility Act on borrowing. Therefore, we urge the National Assembly to address this issue and come up with a legislation that will stipulate more stringent conditions on borrowing. The legislation must compel the states to respect the provisions of the Fiscal Responsibility Act.
Unfortunately, many state governments had exceeded their borrowing limits as well as 50 per cent of their total annual revenue stipulated in the Fiscal Responsibility Act as a means of financing their budgets. Although there is nothing wrong with borrowing, we advise that such loans should be prudently utilised. Without doubt, misappropriation of funds by some governors may have led to the rising domestic debt. There is also need for a comprehensive review of the process of contracting the debts.
Though the states are entitled to their share of the monthly allocation from the Federal Government as stipulated in Section 162(1-4) of the 1999 Constitution (as amended), they should device some strategies that will make them less dependent on the federal allocations and bailouts. The government should quickly conclude the plan to enable state governments exploit the solid minerals in their domains.
This will also enhance their internally generated revenue. Above all, the time has come to embrace fiscal federalism as well as the implementation of policies that will improve the economies of the states. As long as the present federal fiscal structure remains, so long will the states continue to depend almost entirely on the federal allocations for survival. Such parasitic structure does not augur well for the country.