The precarious fiscal health of Nigeria’s component states was once again brought into focus recently by the Fiscal Responsibility Commission, which revealed debt burdens far in excess of their revenues. With no fewer than 18 of the 36 states borrowing over 200 per cent of their earnings, salaries of public sector workers unpaid in 23 states, the need for a radical overhaul of our governance structure is all the more urgent.
The FRC report was unambiguous: most states have actually borrowed by more than 50 per cent of their gross and net revenues; three – Lagos, Osun and Cross River – are in hock by over 480 per cent. As in everything financial, the FRC 2016 report indicates that states’ borrowing routinely violated the Debt Management Framework set by the Debt Management Office, as well as the Investment and Securities Act 2007 that spells out that no state should exceed 50 per cent of its statutory revenue in the previous 12 months in borrowings. Although the commission admitted that data on the internally generated revenues of the states were not available, it noted that since this component did not exceed eight per cent of their total revenue, except Lagos, “the non-inclusion of IGR did not distort result of the analysis.”
It is also true that merely exceeding the 50 per cent of revenue threshold does not automatically translate into “over-borrowing,” as the FRC noted. However, juxtaposed with the known fiscal recklessness of the states, the plunder of available funds, indolence and lack of sound economic policies, there is a need to scrutinise and halt the borrowing spree. The greatest albatross around the states’ collective neck of course is lack of fiscal federalism that has reduced them to beggarly units, ever dependent on the monthly dole from the Federation Account for their survival.
The unsustainable nature of this twisted form of federation is becoming more palpable. Debts are mounting, salaries and pensions are not being paid, while resources abound in the form of arable land and minerals that the states cannot exploit or regulate as they are constitutionally vested in the Federal Government.
Of the total national debt stock of $70 billion by December 2017, as tabulated by the DMO, states owe $10.94 billion (N3.34 trillion) in domestic debts. Add to this short term overdrafts and pending bond issues, as well as the N1.9 trillion extra-budgetary funds that the centre has disbursed to them by way of loans, Paris Club debt refunds and special intervention for salaries, pensions and pressing projects since President Muhammadu Buhari assumed office in 2015.
To be sure, borrowings can be used to deliver infrastructure, social services and to serve as stimulus for the economy. But they must be sustainable both by the resilience of their economies and ability to repay. Lagos, for instance, may be the most indebted state with 670 per cent of debt to net revenue ratio, but its IGR of N302.42 billion of 2016 rose 10.43 per cent to N323.96 billion in 2017 and is targeted to reach N720 billion this year while road, and rail infrastructure projects have marked it out over the past decade. But Cross River State that has exceeded its revenue by 436.49 per cent in borrowings had IGR of N13.77 billion in 2016 and N18.1 billion in 2017, while the state unashamedly budgeted N1.3 trillion this year, hoping to borrow most of this.
Contrast this with the American states of California, Texas, New York and Florida that, according to SmartAsset, owed $151.7 billion, $48.23 billion, 137.3 billion and $35,3 billion respectively by 2015, but boasted Gross Domestic Product of $2.44 trillion, $1.63 trillion, $1.1 trillion and $748 billion respectively. Nigeria’s is $405.1 billion. Their ability to carry the debt burden, the quality of their infrastructure and social services, as well as the well-established democratic institutions translate into accountability to their electorates. Here, neither the governors nor the state legislatures render meaningful accountability, nor do most states provide functional infrastructure and social services.
Our states need to rein in their appetite for loans. Success should begin with drastic cuts in the cost of governance: why should states like Yobe, Kebbi, Ekiti and Imo that generated only N3.24 billion, N3.13 billion, N2.99 billion and N5.87 billion respectively in 2016 maintain dozens of commissioners and advisers, borrow for idle airports, fund religious activities and retain large workforce?
Like other federations, our states should be productive units; wise ones should emulate Lagos and behave like independent, self-sustaining economic regions. India’s states have been borrowing too, says the Reserve Bank of India, but the state of Rajastan, for instance, despite its 10 per cent fiscal deficit in 2016, has a highly diversified, self-sustaining economy, based on agriculture, mining and tourism. Aside from being the second largest producer of cement and accounting for 10 per cent of salt produced in India, it has a GDP of $120 billion. Bihar state recorded the fastest GDP growth of 13 per cent in 2012-2017, is the largest producer of vegetables, and has liberalised its investment environment to become a magnet for multinational brewers like Carlsberg and United Breweries Group. In Nigeria, only Lagos has been able to leverage its advantages to achieve $136 billion GDP.
To lift Nigerians out of poverty like Brazil that moved 20 million poor above the United Nations threshold of $2 per day in eight years, states should liberalise and attract investors into agriculture, mining, manufacturing and infrastructure. Governors and legislators should stop living in luxury at public expense, reduce the public service and map out and implement short, medium and long-term development plans.
There should be renewed urgency to amend the 1999 Constitution now and devolve greater powers to the states to enable them to take charge of their resources and compete.
