Against the backdrop of a wobbling economy, rising debt stock and dwindling revenues, it is timely that the Debt Management Office (DMO) has urged state governments and the Federal Capital Territory (FCT) to give priority to debt management strategies that will enable them to access credit and manage their debt portfolios efficiently. The Director-General of the agency, Ms. Patience Oniha, gave the advice recently at a workshop in Lagos on borrowing guidelines for state governments.
In attendance were state Commissioners for Finance, Accountant Generals and legislative members from different states in the country. The agency’s DG stressed the need for the states to always get the appropriate support from their state legislatures and other relevant institutions in order to avoid debt overhang. The state governments and the FCT should take advantage of the support being offered by the DMO on debt management.
Complying with borrowing guidelines has become more imperative now than before. It will promote compliance with the relevant provisions of the Fiscal Responsibility Act. It also applies to the Federal Government that has been on a borrowing binge. This is also in line with the recommendations of the 2016 Debt Sustainability Analysis. Sticking to borrowing guidelines will help avoid economic and financial shocks. We agree with the DMO that state governments should generate enough revenue to meet their obligations and service their debts.
In fact, debt is an important fiscal instrument in the country’s economic health and needs to be managed properly. It is an open secret that most states currently face acute financial challenges. Many of them can hardly survive without the monthly allocation from Abuja. Available statistics show that some states may find it very difficult to actualise their 2020 budget estimates. With the global economy under serious threat as a result of the coronavirus outbreak, more financial crises may be afoot for state governments unless they prioritise their debt management strategy.
Despite repeated warnings by the DMO and the Fiscal Responsibility Commission (FRC), statistics have shown that many states are currently walking on a tightrope as they have exceeded the threshold of 50 per cent of their total annual revenue stipulated in the guidelines of the DMO on debt sustainability. This is fraught with unpleasant consequences as debt-to-revenue ratio can give a clear picture of the capacity of the debtor states to service and repay their debts. Also, data from the National Bureau of Statistics (NBS) revealed that the debt profiles of no fewer than 18 states have exceeded their gross and net revenues by more than 200 per cent. Last year, the 36 states of the federation and the Federal Capital Territory (FCT) owed over N5.8trillion out of Nigeria’s total debt stock of N25.7 trillion. The challenge most of the states face is not that they have over-borrowed, but their inability to adequately utilise the money for worthwhile projects and make themselves less dependent on the monthly federal allocation. There are indications that most of the states will go bankrupt without the monthly allocations from the centre. Three states with the highest debt to revenue ratios are Lagos, with a staggering 640 per cent, Osun (539 per cent) and Cross River (486.5 per cent).
Other states battling high debt stock are Plateau (342 per cent), Oyo (339.5 per cent), Ekiti (339.3 per cent), Ogun (329.4 per cent), Kaduna (297 per cent), Imo (292 per cent), Edo (270.8 per cent), Adamawa (262 per cent), Bauchi (250.75 per cent), Nasarawa (250.3 per cent), Kogi (221 per cent), Enugu (207.4 per cent), Zamfara (204.9 per cent) and Kano (2202.6 per cent). This shows that the financial situation of most states is precarious unless they diversify their economies and broaden their revenue base. Their present situation is made even worse by the continuing decline in the federal allocations to the states.
There are fears that many of states may not realise the needed revenue to implement their budgets and service their debts. 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 Revenues are small to guarantee their debt sustainability or fund their budgets for 2020.
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 national minimum wage. Except Lagos, Ogun, Rivers, Delta and Kwara, 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. We, therefore, urge the state governments to be prudent in the management of their revenues and be innovative in looking for alternative revenue sources.
The prevailing dire financial situation of most states could be reduced if the governors avoid wasteful spending, borrow cautiously and spend prudently. There is need for every state to borrow within acceptable limits.