The euphoria of winning the last gubernatorial election has since died down and, as returning and incoming governors settle down to govern their respective states, the grim reality staring them in the face is the fact that they are taking over insolvent states. With debts of over N4 trillion hanging on their necks, it gives concern how the state governors would be able to swim out of the tide. The Nigerian Xpress Economic Intelligence Team takes a look at the challenges ahead of Nigerian bankrupt states, relying on data from the Debt Management Office, the National Bureau of Statistics and Economic Confidential Annual States Viability Index (ASVI) reports and seeks the way out.
A few days ago, The Economic Confidential released its Annual States Viability Index (ASVI) report with a damning result, only 10 states are economically viable, while 17 states are bankrupt, as their Internally Generated Revenues (IGR) in 2018 were far below 10 per cent of their receipts from the Federation Account Allocations (FAA) in the same year. What this indicates is that without the monthly disbursement from the Federation Account Allocation Committee (FAAC), they will not be able to operate, even survive as an entity.
The precarious finances of most of the 36 states were further highlighted by the Fiscal Responsibility Commission, which said their combined debts exceeded their revenues by N2.39 trillion in 2017, a 53.31 per cent deficit. With oil prices unstable, mounting debts, capital flight, record level unemployment and barefaced profligacy and stealing by some governors, bankruptcy stares Nigeria’s state governments in the face unless urgent steps are taken to remedy the situation.
More worrisome is the debt profile of most if not all of the states. As of December 2017, the 36 states of the federation had total public debts of N4,495,027,062,300.37 while they had gross statutory revenues totaling N2,098,615,470,240.44 and net revenues totaling N1,739,290,877,423.07.
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This means that collectively, the debts of the 36 state governments exceeded their statutory revenues for the whole year by N2, 396,411,592,060 or by 53.31 percent.
It also means that the states spent a total of N359, 324,592,817.3 or 17.12 percent of their statutory revenues to service their debts within the one year period.
According to the analysis presented by FRC, all the states of the federation except Anambra, Katsina, Sokoto, and Yobe had debts to statutory revenues exceeding 100 percent.
The states’ fianacial burden are so heavy that analysts fear if the incoming governors would be able to carry out their obligations and campaign promises to the electorate.
For instance, Abia State with an IGR of N14bn per annum has a debt stock of over N67bn, Ebonyi which generates about N6bn annually has a debt profile of N55bn. Oyo, Osun, Cross Rivers, Taraba with combine IGRS of N56bn have a combine debt profile of N467bn. Imo, Plataue, Rivers and Akwa Ibom all have a debt profile of N98bn, N100bn, N225bn and N198bn respectively while they generate a paltry N14bn, N12bn, N112bn and N24bn amongst themselves.
While Lagos state can be seen to be generating high amount of IGR, its debt stock of N530bn against the IGR of N382bn gives cause for concern.
To further underscore the gloomy outlook, Governor AbdulazizYari of Zamfara who also doubles as the Chairman of the Nigeria Governors’ Forum (NGF), recently advised newly-elected
and returning governors to gear up for possible economic recession in Nigeria in mid-2020. He said that due to the drop in the price of crude oil from 114 to 75 dollar per barrel in the mid of 2014, it became very difficult for many states to even pay salaries.
“This scenario is a wake-up call for all of you to come amply prepared to face these kinds of challenges especially since we are expecting the possibility of another cycle of recession by the mid-2020. “This may last up to the third quarter of 2021. Your good spirit of stewardship will make you contain the situation should there be one. “Also as members of the National Economic Council, you must work hand in hand to boost the economy in tandem with the global best practices,’’ the governor said.
He commended President Muhammadu Buhari for his numerous interventions that saved the states from debilitating economic challenges, as well exit of Nigeria’s economy from recession. He said that at a point, 27 states were experiencing difficulty in settling their workers’ monthly salaries, development of infrastructure and effective service delivery. “Mr. President’s intervention through bailouts from the capital market through the Central Bank of Nigeria, infrastructure development funds, Anchor Borrowers’ Programme, budget support, London and Paris Clubs refunds have significantly saved the situation,’’ he said.
Yari, however, stressed the need for states to work harder to boost their Internally Generated Revenue (IGR) to enable them to execute more projects and reduce over-dependence on the federation account. He also advised governors to look inward by boosting their revenue generation and also utilise the accruing revenue to execute projects that would touch the lives of the ordinary people. “You must not forget the high expectations of our people on us; now that the democracy is maturing day in day out the challenges of governance and service delivery are more demanding.’’
Lagos leads, Ogun, Rivers, Delta, Kwara others show their strength
Lagos State remained steadfast in its number one position in IGR with a total revenue generation of N382bn compared to Federation Accounts Allocation (FAA) of N260bn which translate to 146 per cent difference in the twelve months of 2018.It is followed by Ogun State 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 State with a low receipt from the Federation Account has maintained its impressive IGR by generating N23bn compared to FAA of N81bn representing 28%.Others with impressive IGR include Edo with IGR of N28bn compared to FAA of N112bn representing 25%; Kano generated N44bn compared to FAA of N183bn representing 24%; Enugu with IGR of N22bn compared to FAA of N92bn representing 23%; Ondo with IGR of N24bn compared to FAA of N108bn representing 22.77%; Kaduna with IGR of N29bn compared to FAA of N131bn representing 22.44% while Delta State earned N58bn IGR against FAA of N285bn representing 20%.
The report noted that ten states with impressive IGR generated N808bn in total, while the remaining states merely generated a total of N295bn in 2018.
Kebbi, Yobe, Katsina lead states that may collapse without FAA
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The states that may not survive without Federation Account Allocation and are the major poor internal revenue earners are Katsina which generated N6.9bn compared to FAA of N138bn representing 5.03%; Yobe N4.48bn compared to FAA of N89bn representing 4.86% and lastly Kebbi N4.88bn IGR compared to FAA of N101bn representing 4.88%.”
They are followed by Ebonyi which realized a meager N6.14bn compared to a total of N76bn it received from the Federation Account Allocation (FAA) in 2018 representing about 7.98%; Bayelsa with IGR of N13.6bn compared to FAA of N192bn representing 7.10%; Taraba N5.96bnbn compared to FAA of N88bn representing 6.77%; Adamawa with IGR of N6.2bn compared to N97bn of FAA representing 6.77% and Borno with IGR of N6.52bn compared to N122bn of FAA representing 5.3% within the period under review.
The report added that “The poor states may not stay afloat outside the Federation Account Allocation due to socio-political crises including insurgency, kidnapping, and armed-banditry and herdsmen-farmer clashes.Other states lack foresight in revenue generation drive coupled with arm-chair governance.
The Economic Confidential ASVI further showed that only three states in the entire Northern region have IGR above 20% in comparison to their respective allocations from the Federation Account. They are Kwara, Kano and Kaduna States.
Meanwhile, seven states in the South recorded over 20% IGR in 2018. They are Lagos, Ogun, Rivers, Edo, Enugu, Ondo and Delta States.
The four southern states with the poorest Internally Generated Revenue of less than 10% compared to their FAA in 2018 are Akwa Ibom, Ekiti, Ebonyi, and Bayelsa.
Similarly, 13 Northern States have poorest IGR, namely Benue, Nasarawa, Gombe, Zamfara, Niger, Bauchi, Jigawa, Taraba, Adamawa, Borno, Katsina, Yobe and Kebbi States.
More ominous signs ahead
As if the situation is not worse as it is, a former Commissioner for Finance in Lagos State, Dr. Adebayo Adewusiin, in an earlier interview has urged many states to brace up for bankruptcy when the implementation of the new N30, 000 minimum wage finally come into effect. He expressed worries that many states did not have the capacity to pay the new wage, adding that the situation might become worse if there was a decline in revenue.
“The truth is that the N30,000 that we are talking about, many of the states cannot pay, they do not even have the capacity to pay and that is a simple truth. We are all witnesses to the constant interventions to states in the name of bailout funds that the Federal Government gave as support. Right now, many states are still owing several months of unpaid salaries and pensions,” he said.
Speaking further, Adewusi projected that if the prices of crude oil drops, many states will become bankrupt.
“If the prices of crude oil come down, it means allocations to states will decline. When this happens, it means that the states would work extra hard to source for their own Internally Generated Revenue, otherwise many states will be bankrupt. It is the truth and reality of it,” he said.
According to him, there is a need for the Federal Government to augment the revenue allocation of states in order to meet up with their wage bills.
“What this means is that there is the need to do a total review of the revenue sharing formula. Except that is done, there is no way many of the states will pay and it will create a seriously destabilising effect on the operations and the economy of many states. Even when it was N18, 000, many states could not pay” he added.
With these worrying figures coming from the states, could it be safe to say incoming governors after their swearing in will be faced with enormous task of rescuing their states from the jaw of bankruptcy, how well they are able to do this is left to be seen.
