The contentious issue of indebtedness by Nigeria’s 36 states was re-ignited recently by a renewed debate over the legality of federal bailouts to the cash-strapped tier of government. While some say it is illegal and feeds the wasteful propensities of state governors, the latter and the central government insist that it is a timely step to avert bankruptcy and reduce the rising debt burden. It is time, however, to apply the brakes on the borrowing spree of state governments and their fiscal recklessness.
There should not only be a limit to borrowing, borrowing must be predicated on globally acceptable principles of need, ability to repay, judicious deployment of funds and adherence to acceptable thresholds. Most of our states fail the litmus test based on these parameters. Late last month, the Fiscal Responsibility Commission raised the alarm that 23 states exceeded their borrowing limits in Fiscal Year 2015 as agreed to under the sub-national borrowing guidelines prepared by the Debt Management Office. By the DMO Framework that targets debt sustainability, “…debt-to-income ratio of states should not exceed 50 per cent of the statutory revenue for the preceding 12 months.” Of the 23 that borrowed in excess of 50 per cent of their statutory allocations (funds disbursed from the federal pool) in 2015, 20 of them actually borrowed more than half of their combined statutory accruals plus their Internally Generated Revenue combined.
According to the Nigeria Extractive Industries Transparency Initiative, total indebtedness of the states was N2.4 trillion as of December 2016. Those with the highest domestic debt by December 2016 as compiled by the DMO were Lagos with N311.75 billion; Delta, N241.33 billion; Osun, N147.06 billion, and Rivers, N142.42 billion, while Akwa Ibom owed N155.43 billion by June 2016.
In August, the Federal Government further tightened the noose on foreign loans for the states, saying that it would not provide the guarantees necessary for such credit. Newly-appointed Director-General of DMO, Patience Oniha, said the moratorium had also been extended to the domestic money market. She explained that the decision was taken because federal monthly allocations from which loans were repaid had severely dwindled, rendering further borrowings unsustainable.
This is the moment of truth; the reality and compelling need for prudence, cost cutting and judicious application of funds to economy-boosting sectors that the states have stubbornly refused to confront. Oniha’s advice that the states adopt frugality “and a new, strategic way of fiscal plans and implementation” is the lifeline the states desperately need, not the infusions of unbudgeted and unaccounted for bailouts the centre has been dishing out.
It is sad that borrowing has not left significant impact in the form of infrastructure as over 60 per cent of the population remain trapped in poverty, unemployment worsens and social services are broken.
Nigerians should interrogate their state governors and demand a new template of governance that emphasises service delivery and accountability. There should be a match between revenues, loans and service delivery in the form of infrastructure and social services provided. It is gross incompetence on the part of governors whose states continue to record dismal IGR and who can neither provide services nor create the enabling environment for productive activities and job creation. While Lagos State has a foreign debt profile of $1.44 billion, it can leverage its rising IGR that now tops N30 billion monthly to provide services and create jobs. But despite a 10 per cent increase to N8.88 billion as total IGR in 2016, it is, however, difficult for Osun State for instance, to justify its third place in states indebtedness with N165.92 billion by December 2016 as compiled by NEITI, and meet its obligations.
Governors should drastically reduce the cost of governance and stop carrying on as if states exist only to pay salaries. Governor Abiola Ajimobi once lamented that out of the N5.4 billion received by Oyo State each month, N5.2 billion was spent on salaries and pensions. An analysis by Business Confidential found that in 2016, only three states – Lagos (169 per cent), Ogun and Rivers – generated IGR of over 50 per cent of their statutory allocations. No other state generated up to 40 per cent of its allocations that year. Not even the highest beneficiary of oil derivation, Akwa Ibom that had domestic debts of N155.43 billion by June 2016. Yobe, Borno, Ebonyi, Jigawa, Kebbi and Ekiti states could only generate between four per cent and 6.5 per cent of what they received and as lamented by the World Bank, cannot survive without federal allocations. No wonder that up to 23 states owe salaries and pensions for between three and 20 months.
For now, the bailouts should stop until we put stringent conditions in place to ensure that they are spent on salaries and pensions as agreed, deployed into job creation schemes and past disbursements fully accounted for. States must cut costs or be allowed to implode in financial ruin. The treasury can no longer afford keeping governors, officials and lawmakers in the opulence they have come to take for granted. They must reduce their bureaucracy. States must be run as self-sustaining economic units. Success will come through opening up rural areas, attracting investors and investing in security. The doors have been opened by ongoing reforms to promote investment in mining, agriculture and power through creative partnerships.
Citizens, through civil society groups, labour, students, market and professional associations, should constantly monitor the deployment of all revenues, including borrowings, and demand accountability always from their officials. The Central Bank of Nigeria too should put stringent limits on banks’ credit to the states.
Ultimately, Nigeria should dismantle the present wobbly contraption and enthrone fiscal federalism and resource control to end the poverty of the states in the midst of plenty and unleash the latent productive forces currently held down by a constraining political arrangement.
