Mounting State Governments’ Debts

source: punchng

DESPERATELY in need of money to meet their recurrent obligations, including public employees’ salaries, and provide social infrastructure, Nigeria’s state governments are piling up debts alarmingly. Granted, the yearlong COVID-19 pandemic has aggravated economic losses across the globe, but their near-exclusive dependence on federal allocations has seen increases in the debt profiles of all the 36 states, according to the Third Quarter 2020 report by the Debt Management Office. The high debt levels are also largely due to the failure to cut waste. The resort to loans might intensify primarily because the second wave of the virus has worsened the fluctuating international oil market, from where Nigeria earns the bulk of its revenue. The International Monetary Fund says that mismanaged loans increase a government’s vulnerability to economic risks. In Nigeria, the subnational governments are close to this doomsday scenario. Hampered by a second recession in five years, rising inflation and high recurrent expenditure, subnational debts grew by N484.24 billion in Q3 2020 to N4.19 trillion, the DMO disclosed. Since 2015 when the President, Major General Muhammadu Buhari (retd.), assumed office, the Federal Government has awarded $2.1 billion as bailout for no fewer than 27 states. To pay salaries, some states depend on domestic bonds, some of the instruments having a short-term duration. At about N1.4 trillion or 33.41 per cent, four of the states in the South-South – Akwa Ibom, Cross River, Delta and Rivers – and Lagos owe the highest percentage of the debt stock. The country’s commercial hub leads the states and the FCT with 11.77 per cent or N493.32 billion; Rivers, Akwa Ibom, Delta and Cross River are next to Lagos respectively with 6.37 per cent (N266.94 billion), 5.71 per cent (N239.21 billion), 5.63 per cent (N235.86 billion) and 3.92 per cent (N164.10 billion). Hazardously, over a half of the states have debt profiles far higher than their internally generated revenue, contrary to the 200 per cent threshold recommended by the World Bank. Osun had an IGR of N17.9 billion in 2019, far below its domestic debt stock of N134.89 billion. In this wise, Delta’s debt is N235.86 billion (IGR was N64.7 billion in 2019), Akwa Ibom has a debt of N239.21 billion (IGR N32.3 billion) and Kano, which has a stock of N116.99 billion (IGR was N40.6 billion in 2019). Other states fare along the same precarious lines. Alas, there are few infrastructure projects to show for the debts. Intra-state and rural roads are decrepit in nearly all the states, rendering movement haphazard. Transporting agricultural produce from the hinterland to the urban centres is therefore hazardous and costly. Such shabbiness does not support economic development, job creation and IGR, the base the states sorely need to lift the citizens out of the extensive poverty plaguing them. The governors are seemingly utilising these loans to pay workers’ salaries, maintaining their expansive lifestyles and servicing the huge cost of running government. Although as many as 27 states could not pay salaries during the previous recession five years ago, state governors remained averse to pruning governance costs or reducing their large number of aides. A majority of the state governors hold on tightly to the monthly security vote, which runs into billions of naira annually. Despite this, insecurity is rising across the land. Instead of investing loans in viable projects, there seems to be a primordial competition to construct white elephants. One of such is the morbid taste for state airports. Nigeria has over 30 airports of which only the ones in Lagos and Abuja are economically viable, but states like Osun, Ekiti, Ogun, Zamfara, Nasarawa, Abia and Anambra are intent on building airports. This is illogical. The airports in Niger, Kebbi, Jigawa and Katsina are rarely used or are being subsidised to remain open. In retrospect, Nigeria (inclusive of the subnational governments) escaped from the external debt peonage in 2005/06 when the Olusegun Obasanjo administration negotiated and paid off its Paris Club creditors. That negotiation left Nigeria with just about $3 billion in 2006, but by 2015 when Buhari assumed office, the external debt stock had risen to $10.3 billion. In Q3 2020, the total debt was $84.57 billion, comprising 37.82 per cent (external) and 62.18 per cent (domestic). Economists argue that the domestic component of debts has high risks for an economy. In mitigation, Lagos has consistently come tops in IGR, notching up 29.9 per cent or N398.73billion of the total N1.33 trillion states’ IGR in 2019, and N204.51 billion of the N612.87 billion generated by the subnational governments in first half 2020. For 2021, Lagos has ambitions to raise its IGR to N60 billion monthly. Its neighbour, Ogun, which has a domestic debt stock of N150.09 billion, plans to generate N75 billion in 2021. On its part, the Federal Government raised the Value Added Tax from 5.0 per cent to 7.5 per cent in 2020. The World Bank says the National Rural Roads Programme in India, which built 300,000km of roads between 2000 and 2010, reduced farm losses from 80 to 20 per cent, employed 20,000 engineers, thousands of skilled and unskilled labour; it improved significantly the earnings of farmers and encouraged migrants to return home to farming. To start with, a policy of gradual adjustment would typically be preferred, particularly when the economy is already weak. With income from oil unpredictable, state governments have to do more to mobilise resources from other sources to exit the debt trap. It is not proper for public officials to appear to be living high on the hog. The governors should stop living like emperors; they should cut down drastically wasteful costs like security votes, expensive lifestyles and large retinue of aides. Corruption should be seriously addressed to block leakages in revenue collections and payrolls. Resources should be deployed to critical areas like rural road infrastructure to restart the diversification into agriculture. All states should concentrate on their areas of comparative advantage. Imo and Edo should revisit palm produce; the South-West states, cocoa and other cash crops; the North-Central, legumes and nuts and the North, groundnuts and food items. They should build storage facilities for perishable produce and add value in conjunction with private sector operators. States with solid minerals should develop international best practices to exploit them. The governors should think out of the box in providing security instead of relying exclusively on the Federal Government.

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