States sinking into debt despite rising revenues

THAT most of Nigeria’s 36 states are sinking deeper into a debt trap despite increased allocations from the Federation Account gives cause for concern. The paradox of rising debt amid rising revenues after the petrol subsidy cancellation points to the gross inefficiencies that have defined governance at the sub-national level.

Fresh reports indicate that 20 state governments borrowed a total sum of N446.29 billion to address their budget deficits and to cover various expenses. This is regardless of a 40 per cent rise in Federation Accounts Allocation Committee disbursements over the past year on average due to exchange rate gains.

Disbursements to the states, including derivation funds from FAAC for the first six months of 2024, amounted to N2.7 trillion compared with N3.58 trillion for 2023 per NIETI.

FAAC data suggests that several states are in a deficit position due to debt obligations. Osun, Ondo, Kaduna, and Cross River have a deficit of N10.94 billion, N27.72 billion, N15.83 billion, and N10.02 billion respectively following debt servicing deductions by FAAC. This untenable situation means they need to borrow to service accumulated debts, fulfil basic obligations, and salary payments, and provide social services and infrastructure.
The current set of state governors claimed to have inherited at least N2.1 trillion in domestic debts and $1.9 billion in external debts from their predecessors.

Twenty-two states reportedly spent a total sum of N251.79 billion to service debt inherited from past administrations within nine months of assuming office. For all the debts incurred, there is hardly anything to show for it.

Dilapidated schools, hospitals, and roads litter many states. Potable water, sanitation, and security services are absent despite huge borrowing.
Part of the problem is the naira devaluation. It has seen dollar-denominated debt balloon to unsustainable levels since states, contrary to the Federal Government’s directive, prefer to borrow from multilateral agencies.
Ekiti, Cross River, and Ogun proposed a suspension of their foreign debt repayments worth $501 million, citing the inability to pay, which was rejected.

The precarious states’ finances expose fundamental weaknesses in resource management, priority setting, and oversight by state assemblies. With the level of indebtedness, many are bound to default on payment of the new minimum wage.

Nigerian state governors are notoriously reckless. They lavish state funds on fancy projects, which they can ill afford, and end up piling up humongous debts.

In recent years, governors of the six South-West states have voted more than N266 billion for the construction of new airports despite the non-viability of the many existing ones. Six state governments have spent about N160 billion on airport projects, which aviation industry experts have classified as unviable.

Despite the limited capacity of many states to generate funds internally to support increased spending, overheads are trending skywards with government funds treated as handouts to political allies and hangers-on.

Last month, the Kogi State Governor, Usman Ododo, appointed 1,192 additional aides. The Kano State Governor, Abba Yusuf, parades a retinue of 196 aides while Ahmadu Fintiri of Adamawa appointed 182 special assistants in May. Caleb Mutfwang, the Governor of Plateau State, is attended to by 136 special assistants while Edo State Governor, Godwin Obaseki, has a total of 186.
State governors are not accountable. Virtually all state assemblies are beholden to the governor and perform little or no oversight function over government spending. The over-dependence of states on FAAC disbursements is not sustainable.

Currently, only three states—Lagos, Rivers, and Anambra—can run on IGR alone. States need to create the environment to attract investments and businesses and facilitate public-private sector partnerships to provide infrastructure and improve the quality of life of residents. There must be improvements in accountability, evaluation, and reporting systems to curb wastage and corruption at the sub-national level.