Editorial: On the insolvency and rising debt profile of States

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Amid the apparent dithering and failure of the federal government to pay state governments their share of monthly allocation from the Federation Account (FA), which continues to diminish by the day, the latest Annual States Viability Index (ASVI) which shows that as many as 17 States of the federation were insolvent is a recipe for social cataclysm and possible violent implosion of the nation over a serious national issue that has well gone past crisis point. As he prepares to begin his second term, President Buhari must deploy all the instruments of power at his disposal and act decisively to salvage a nation crumbling under the weight of corruption and ineptitude. Nigerians are tired of excuses; they deserve some respite.

The intelligence magazine, Economic Confidential which published the ASVI, noted that states are deemed insolvent if their Internally Generated Revenues (IGR) in 2018 was below 10% of their receipts from the Federation Account Allocations (FAA) in the year under review. The IGR are generated by states through Pay-As-You-Earn Tax (PAYE), Direct Assessment, Road Taxes and revenues from Ministries, Departments and Agencies (MDAs). The IGR of the 36 states of the federation totaled N1.1 trillion in 2018 as compared to N931 billion in 2017, an increase of N172 billion. Abuja, the Federal Capital Territory which is not a state generated N65bn IGR against N29bn from the FAA. The report further indicates that the IGR of Lagos State (N382bn) was higher than that of 30 States put together and noted that without the monthly disbursement from the Federation Account Allocation Committee (FAAC), mostly from the oil receipts, many states cannot survive.

Lagos State remained number one in IGR with N382bn compared to FAA of N260bn which translates to 146% in 2018. It is followed by Ogun which generated IGR of N84.55bn compared to FAA of N93bn representing 90%; Rivers with N112bn compared to FAA of N237bn representing 47% and Kwara with a low receipt from the FAA maintained its impressive IGR by generating N23bn compared to FAA of N81bn representing 28%. Others with impressive IGR include Edo with IGR of N28bn against FAA of N112bn (25%); Kano with N44bn against FAA of N183bn (24%); Enugu with IGR of N22bn against FAA of N92bn (23%); Ondo with IGR of N24bn against FAA of N108bn (22.8%); Kaduna with IGR of N29bn against FAA of N131bn (22.4%) while Delta earned N58bn IGR against FAA of N285bn (20%).

The ten states with impressive IGR generated N808bn in total, while the remaining 26 states generated N295bn in 2018. Instructively, the 17 states with less than 10% IGR remained unchanged from the previous year, 2017. The states that may not survive without the federal allocation due to poor internal revenue generation are Ebonyi which with a meagre N6.14bn against FAA of N76bn (7.98%); Bayelsa with N13.6bn compared to FAA of N192bn (7.1%); Taraba N5.96bnbn compared to FAA of N88bn (6.8%); Adamawa with IGR of N6.2bn compared to FAA of N97bn (6.8%) and Borno with IGR of N6.52bn against FAA of N122bn (5.3%) within the period under review. The poster children for poor internal revenue generation are Katsina with N6.9bn against FAA of N138bn (5.03%); Yobe N4.48bn compared to FAA of N89bn (4.86%) and lastly Kebbi N4.88bn compared to FAA of N101bn (4.88%).

The Economic Confidential ASVI further showed that only three states in the entire Northern region - Kwara, Kano and Kaduna - have IGR above 20%. Meanwhile seven states in the South - Lagos, Ogun, Rivers, Edo, Enugu, Ondo and Delta recorded over 20% IGR in 2018. The four Southern states with the poorest IGR of less than 10% compared to their FAA in 2018 are Akwa Ibom, Ekiti, Ebonyi and Bayelsa. Similarly, 13 Northern States - Benue, Nasarawa, Gombe, Zamfara, Niger, Bauchi, Jigawa, Taraba, Adamawa, Borno, Katsina, Yobe and Kebbi have poor IGR.

Of particular interest, is the rising debt profile of some states which are neck-deep in debt. Delta, Osun and Akwa Ibom lead the total debt profiles of state governments, according to the Nigeria Extractive Industries Transparency Initiative (NEITI). The total debt of the four states represents about 40% of debts owed by all 36 states of the federation. With the economy stuck in recession; it takes only a short while before tensions begin to mount. As tensions rise and tempers flare, Nigeria, charged from palpitation of socio-political discontents, would easily be fanned aflame by what seems a disaster waiting to happen.

The AVSI review suggested that the wide disparities in IGR vis-à-vis FAA disbursements to states were also the result of differences arising from the revenue sharing formula, deductions from states due to external debts, contractual obligations, among others. While increase in revenue will reflect positively on the fiscal situation of the federating units; states with poor IGR will continue to struggle to finance their budgets. There is virtually no state that can adequately finance its budget from IGR and FAAC disbursements; and must therefore resort to different levels of borrowing. The situation has put the states in a debt trap apiral and underscores the urgent need to diversify the economy.

Despite federal allocation, many states, especially oil-producing ones are broke; or in the red. What is urgently needed is a public enlightenment campaign on the lack of viability of many states, vis-à-vis the country’s socio- economic and political reality. Conservative estimates by governance experts put the number of states that can survive without federal allocation, to no more than three. With a huge debt portfolio, the country’s 36 states and the Federal Capital Territory (FCT) are in dire financial straits. The Debt Management Office (DMO), which, in a report said the government’s external debt increased by 42.69%, from N4.527 trillion in 2017 to N6.460 trillion in 2018. Also, the total sum of the external and domestic debt stock of the 36 states and the FCT was put at N5,152 trillion -N3,853 trillion domestic debts, and N1.29 trillion external debts.

Paradoxically, on a debt solvency and liquidity ratio analysis relative to revenue inflow to states, the oil-rich states like Delta, Akwa Ibom and others are the heaviest debtors. Given these unedifying statistics, it defies logic and basic public morality that the same masses who are the victims of mismanagement and bad governance would come out in their numbers to celebrate the return of James Ibori; convicted former delta governor, and others like Godswill Akpabio, former Akwa Ibom governor, who lost his Senate re-election bid and other erstwhile governors who left their looted states with generous retirement packages that border on insanity. More state governors and their cronies have joined the caravan of the rogues, becoming overnight millionaires and billionaires at the expense of the people and their future. The public service is full of people whose wealth and opulent lifestyle cannot be explained outside corrupt practices, and government at all levels has, of course, become the quickest route to free money and stupendous wealth. The impunity is too mind-boggling.

Presently, the states are drain pipes and electoral battlegrounds for self-aggrandizing political jobbers. If the country operated a system of good governance and accountability, efforts would rather be geared towards harnessing the existing states into viable units. The Buhari administration must address the fundamental issue of local government as a tier of government which ideally is a contract between regions and the center in a manner that renders the contracting parties autonomous and coordinate. This is one issue that has been overlooked by past administrations; and it is an issue that will return to haunt the country unless decisive enough actions are taken and the political will to do the right thing is mustered to secure the rightfulness of local governments as an integral part of the federating units.

Truth be told: a situation where the federating units are all broke and insolvent has far-reaching national security implications. Which is why it bears reminding the President that a time like this demands a leader that would stand up to be counted in action, not only in words. The alternative to restructuring the Nigeria federation to unleash the development capacity of the component units cannot be creating more states, but rather; shrinking them into larger productive units in order to reduce the cost of governance and free resources for national development. Nigeria’s economy has been groaning under the weight of high governance cost which consumes 70% of its earnings to the detriment of capital projects. Infrastructure and other indices of development have been de-emphasized in order to foot the cost of governance.

The rising debt profile of states is a national emergency and a sad reflection on presidential leadership that could be interpreted as an act of nonchalance and a blatant endorsement of the status quo; which wittingly or unwittingly is pushing the nation towards the precipice. Preaching is not the solution. The buck stops at the President’s desk and any leader that perennially makes excuses only exhibits a lack of focus and opens himself to charges of cluelessness and failed leadership. Thankfully, Mr. President has another opportunity as he begins a new mandate - if the election tribunal upholds his victory - to turn things around and prove himself as a man who can deliver on his promises; a President who fought the most, not just spoke out the  most, on behalf of the Nigerian people. This is the time to deepen Nigeria’s democracy; and give it a new identity for it to live up to its billing as government of the people by the people and for the people.