States Groan Under ₦3.7tr Debt Burden — Daily Trust Investigation

Image source: Daily Trust

The 36 states of the federation and the Federal Capital Territory are indebted to the tune of ₦3.7 trillion, nearly two-third of their 2016 total budgets, making it nearly impossible for them to pay workers salaries and execute projects, Daily Trust investigations have shown.

Despite assurances that the public debt stock is within manageable level, official data analysed by Daily Trust shows that many states lose large chunk of their statutory monthly allocations to debt service deductions, leaving small amounts for fresh projects.

Analysis of official data from the Debt Management Office (DMO) shows that the 36 states and the Federal Capital Territory (FCT) are paying heavily for domestic and foreign debts that piled up over time, with some of them collecting zero or paltry parts of their monthly statutory allocations while the rest of it is held at source to settle debts.

The DMO data show that as at December last year, the total debts stock of the 36 states and the FCT was ₦3.652 trillion, ₦2.503 trillion is the domestic component while the remaining ₦1.148 is the foreign debts.

The 36 states budgeted N6.1 trillion for 2016, with capital spending amounting to ₦3.3 trillion, which is 54 percent of their total budgets, while recurrent gulps ₦2.7 trillion (44 percent).

The states’ total budget carries a deficit of ₦2.3 trillion, an amount nearly their total debt stocks.

Foreign debts

Analysis of the DMO data shows that the seven northwest states have a total external debt stock of US$512 million (about ₦176 billion when converted at US$1 = ₦344.)
The northeast region has a combined debt stock of US$250 million (₦86 billion), while north central has US$248 million (₦86 billion).

The southeast states have a combined budget of US$280 million (₦97 billion), southwest US$1.6 billion (₦538 billion), while south south has US$481 million (₦166 billion).
The detailed breakdown of the DMO data showed that Lagos, Kaduna and Edo states had the highest external debt stock of US$1,207.90 million (35.84 percent), $226.37 million (6.72 percent), and US$168.19 million (4.99 percent), respectively.
On the other hand, Taraba, Borno and Yobe states had the lowest external debt stock, accounting for US$22.93 million (0.68 percent), US$23.19 million (0.69 percent) and US$30.46 million (0.90 percent), of the total States and the FCT’s external debt stock, respectively.

Domestic debts

The northeast region has a total domestic debt stock of ₦212 billion; northwest N270 billion and north central ₦272 billion.

In the south, the south west has a local debt stock of ₦565bn billion, south east ₦181 billion and south south ₦868 billion.

States with the highest domestic debts are: Delta (₦320bn), Lagos (₦218bn), Akwa Ibom (₦147bn), Osun (₦144bn), Rivers (₦134bn), FCT (₦133bn), Cross River (₦115bn), and Bayelsa (₦103bn).

Anambra and Yobe states are the states with the least domestic debts of ₦3.6bn and ₦3.9bn respectively.  They were followed by Katsina (₦11.5bn), Sokoto (₦11.7bn), and Niger (₦21.5bn).

Endless bailouts

To shore up their revenue shortfall, at least about two-thirds of the 36 states governors had demanded for bailout from the federal government.

A total of ₦662 billion bailout funds were renegotiated for 27 states in July last year, with 19 states receiving ₦222 billion from the CBN as at September, 2015.

The CBN approved ₦338 billion loans to 27 states to pay outstanding salaries at nine percent interest rate over a 20 years period.

The DMO also converted ₦324 billion debts of 11 states to long-term bonds at the rate of 14.83 percent payable over 20 years.

The 11 states whose debt stocks were converted by the DMO are Osun (₦80.6 bn), Delta (₦69.8bn), Ogun (₦55.4bn), Imo (₦37.1bn), Ekiti (₦18.8bn), Kwara (₦15.6bn), Edo (₦11.9bn), Benue (₦10.9bn), Oyo (₦9.1bn), Bauchi (₦8.6bn) and Kogi (₦810m).

Osun tops the list of the states with the highest bailout funds of (₦123.6bn). It was followed by Delta (₦79.8bn), Ogun (₦75.4bn), Imo (₦63.9bn), Kogi (₦51.6bn), Benue (₦38.9bn), Oyo (₦35.7bn), Ekiti (₦28.4bn), Kwara (₦19.9bn), Gombe (₦16.5bn), Bauchi (₦15.1bn), Edo (₦15.1bn), Ondo (₦14.7bn), Abia (₦14.2bn), Sokoto (₦10.1bn) and Zamfara (₦10.bn).

Those states with the least bailout funds include Kebbi (₦690m), Bayelsa (₦1.2bn), Adamawa (₦2.4bn), Katsina, (₦3.3bn), Ebonyi (₦4.1bn), Enugu (₦4.2bn), Niger (₦4.3bn), Plateau (₦5.4bn), Borno (₦7.7bn), Cross River (₦7.9bn), and Nasarawa (₦8.3bn).
Just last month, the federal government also approved another ₦90 billion tranche of bailout to the states. Vice President Yemi Osinbajo said last week that about 22 states have already benefitted from this facility.

The deductions

About ₦32billion was deducted from states allocations from the Federation Account in April for different loans they incurred, according to a report by the Economic Confidential.
For instance, Osun states went home empty handed last April, as its allocation of ₦2.030 billion for the month was wiped away by a deduction of ₦2.391 billion leaving a deficit of ₦361 million.

For the oil-rich Bayelsa state, out of its ₦4.812 billion for April, ₦3.207 billion was deducted for debts settlement.

Cross River state with a total deduction of ₦1.405 billion, Ogun state, ₦1.185 billion, Plateau State, ₦1.248 billion and Ekiti State with ₦1.067 billion all representing 63.46 percent, 57.20 percent, 56.52 percent and 55.33 percent respectively within the period under review.

From the investigation, not less than ₦3.078 billion of the total amount was deducted for bail-out funds granted the states by the Federal Government.

At least eight states had no deductions on bail-out funds for the month of April 2016. The states: Akwa Ibom, Anambra, Jigawa, Kogi, Lagos, Rivers, Yobe and the Federal Capital Territory did not collect the bail-out funds from the federal government or appropriate time for the deduction have not fallen due and are yet to commence.
Poor fiscal system breeds debts – Experts

There may not be an end to the rising debt stocks of states yet, especially as oil revenue profile continues to be threatened by the activities of the Niger Delta militants, Dr Dauda Garuba of the Natural Resource Governance Institute.

“I won’t be surprised if the situation gets rougher. I’m aware that many analysts have suggested the need to increase internal revenue generation (IGR), but even that is a function of economy of scale,” he said.

He said “one is expected to grow the state economies first before taxing the people. An economy that is not grown in anticipation of hard times cannot suddenly develop the necessary shock-absolvers to withstand such tough times.”

Garuba said “virtually all past and present governors failed in this regard, thus making it difficult to increase IGR overnight. To force it now will amount over-taxing a people already over-burdened and impoverished.”

Executive Director of the Civil Society Legislative Advocacy Centre (CISLAC) Auwal Rafsanjani said the irresponsible fiscal system across the states is responsible for their rising debts profile.

“The debt profile will continue to skyrocket because of the state governors’ style of borrowing money to fund white elephants projects. Their major concern is the percentage they get from such projects, whether they are executed or not, is not their business,” he said.

Rafsanjani said the passage of Fiscal Responsibility bill at the federal level would go a long way in arresting this “scandalous and unfortunate scenario at the state level by limiting senseless borrowing among others.”

No cause for alarm – DMO

According to the DMO 2015 Annual Report and Statement of Account, says the result of last year’s Debt Sustainability Analysis (DSA) showed that relative to the country’s aggregate output (GDP), Nigeria remained at a low risk of debt distress.

It however added that “debt sustainability remained mostly sensitive to the revenue shocks, indicating that an increase in aggregate output (country’s GDP), did not necessarily result to a proportionate increase in revenue.”

The report also “pointed to the urgent need for the authorities to fast-track efforts aimed at further diversifying the sources of revenue away from crude oil and implement far-reaching policies that would bolster exports and other forms of capital flows such as foreign direct investments into the country.”

“This has become very critical, given the continued volatility in the price of crude oil in the international commodities market,” the DSA report said.