‘ Debt hangman; dwindling revenue test states’ viability

A report published last month by BudgIT titled “the State of States” has revealed that half of the 36 Nigerian states may have been trapped in fiscal crisis, a situation which threatens to render them unsustainable except the governors offer a new policy mix to increase Internally Generated Revenues (IGR). Ajibola Amzat, Features Editor, examines this report.

A number of states within the Nigerian federation may no longer be viable if a report by a civic organisation, BudgIT, which analyses “the State of the States”, captures the situation correctly.

BudgIT, a civic organization that monitors governments’ budgets and public spending, in its November report, has revealed that 50 percent of the states in Nigeria are unsustainable within the current economic paradigm and warned that the affected states would go bankrupt sooner than later except they shore up their revenue base.
The states are Osun, Plateau, Ogun, Nassarawa, Oyo, Bayelsa, Adamawa, Borno, Akwa Ibom and Kwara states. The rest include Ondo, Ekiti, Bauchi, Abia, Zamfara, Kaduna, Imo and Gombe.

The report finds that ability of states to meet monthly recurrent expenditure commitment between January and July 2015 has been weakened as a result of low federal allocation and Internally Generated Revenue (IGR) accrued to the states. Another factor mentioned in the report is the debt profile of each state, with the monthly repayment depleting the finances of the state governments.

In the sustainability index which illustrates the size of state government revenue and how much of this can cover recurrent expenditure on a monthly basis and debt service in the medium-term, Plateau State is ranked the least sustainable among the 36 states followed by Osun, Nassarawa, Borno and Ekiti.

But the state with the least capacity to pay its workers and for other overheads is Osun. Within the seven months captured by the report, the total average monthly revenue for the state is N4 billion while its average monthly recurrent expenditure stands at N7.5 billion, leaving a shortfall of N3.4 billion every month. Therefore, in seven months Osun state has recorded a shortfall of N23.8 billion.

Similarly, Plateau records a shortfall of N3.2 billion every month; Ogun, N1.9billion; Nassarawa, N1.6 billion; Oyo, N1.6 billion and Bayelsa, N1.3 billion (see the rest in the table).
Though states such as Kaduna, Borno, Cross River, Kano, Katsina, Kebbi, Rivers, Osun and Ogun allocate greater part of their 2015 budget to capital expenditure above recurrent expenditure which is necessary to hasten development, the majority still falls short of 70/30 percent recommended by United Nations Development Programme (UNDP).

Mimiko

The Statistician General of the Federation and Chief Executive Officer, National Bureau of Statistics, Dr. Yemi Kale has once said, “Nigeria may for a long time not be able to adhere to the recommendation by UNDP that countries should allocate 70 percent of their budget to capital expenditure and 30 per cent to recurrent expenditure.”
Furthermore, among the 27 states that received federal government bailout package and the 11 states that are indebted to various local banks, Osun State also ranks the highest with a total of N123.6 billion debt (FG bailout: N34.99bn; other loans: N88.6bn). It is followed by Delta State with total debts standing at N79.84bn; Ogun, N75.4 bn; Imo, N63.91 bn; Kogi N51.65 bn, Benue N38.9bn and others.

Lagos though ranks the highest in 2014 among the indebted states in term of external debts (N500.8 bn), it has the highest internally generated revenue of N276 bn, and it is the second most sustainable state in the federation after Rivers.

Dickson

The report concludes that the states’ sharp turn to insolvency has been preceded by a faulty economic plan.
“Despite crude oil staying above $100 per barrel for 42 consecutive months, Nigeria’s federal, state and local governments failed to build adequate fiscal buffers. The Excess Crude Account (ECA) therefore failed to rise, as there was no excess revenue to save,” the report stated.
It also faults political leaders for spending most time bickering on the disbursement of ECA instead of focusing on how to shore up the savings.
“The heightened pressure caused by lesser oil revenue further ensured Nigeria was highly dependent on this fiscal buffer, which came with more controversial clashes, mostly to do with the approval, disbursement and auditing of the Excess Crude Account.
“During the period of the crude oil price boom, Nigeria struggled constantly to meet its production targets, due to associated problems including crude oil theft, pipeline and production facility vandalisation, and poor metering. The resultant effect was that revenue fell short and governments at federal, state and local level had to pull out resources from the country’s fiscal buffer – the ECA, depleting the treasury further.”

According to the report, the states’ road to insolvency was paved by other factors such as huge wages and bloated workforce which put enormous strain on the government’s revenue.
“With oil revenue from crude barely covering the personnel and overhead costs of keeping these sizeable governments running, states resorted to borrowing heavily from bankers and issuing medium-term loans and Bonds. Often, the borrowed money was expended on fickle projects which would guarantee no tangible returns; sustainable repayment plans were not put in place.

However, the figures presented by Oyo State are slightly different from the figures quoted by BudgIT. (See the table below)
In a mail sent to The Guardian, Special Adviser, Communication and Strategy, Yomi ‘Layinka said: “Our monthly wage bill is about N5.2bn while our income from the Federation Account currently hovers between N2.5bn and N3bn in addition to a monthly Internally Generated Revenue of about N1.3bn and 1.5bn, leaving a shortfall of about N1billion.”

He explains further: the state’s average monthly bill remains constant from 2014 and May 2015 when political appointees were still on board. The N7.2bn average monthly expenditure and the average revenue of N5.6bn quoted by BudgIT could be correct up till sometime last year before the drop in the average revenue accruals to the states of the federation. Our current claim of N5.2 monthly wage bill excludes other expenditures.  He, nonetheless, agreed that Oyo State is “currently hamstrung like most other states in the federation.”

Defending the integrity of the report, Co-Founder BudgIT, Oluseun Onigbinde, told The Guardian that his organisation relies on the data sourced from Nigerian Bureau of Statistics (NBS) and Debt Management Office (DMO) to produce the report. “We have kept our data input factual, and considering that oil revenues have not risen, the states’ ranking is a current reflection of the looming fiscal crisis,” he said.

He assured Nigerians of BudgIT’s plan to update the ranking based on new information received from these public institutions.
Meanwhile, the comment attributed to the Chairman, Fiscal Responsibility Commission (FRC), Chief Victor Murako, may have validated the BudgIT’s report. Murako has reportedly predicted a six-month timeline for the total collapse of the economy of the states if the governors fail to find solutions.
According to him, a shutdown is possible if the states do not find creative ways of handling their dwindling allocations from the Federation Account.

El-Rufai

Perhaps, one of the ways the states plan to wriggle out of the fiscal crisis is to cut down the wages. Recently Nigerian Governors Forum, NGF representing the 36 state governors has announced that its members can no longer pay the N18, 000 minimum wages for workers. Their argument is that if they can reduce the personnel cost, they will retain the saving for investment. But the Nigeria Labour Congress (NLC) does not find this argument impressive. Recently at a mass rally in Abuja during the activities to mark the 2015 Africa Industrialisation Day Celebration, the NLC President, Ayuba Wabba vowed that the move by the governors to cut down wages would be massively resisted by the labour.

To avoid disputation, the Union instead advised governors who may not be able to pay the minimum wage to resign from office.
While reacting to the report, the Commissioner for Information and Strategy, Ogun State, Adedayo Adeneye, told The Guardian in a mail that Ogun State was the first to implement the Treasury Single Account (TSA), which brought greater transparency to the states’ finances.
“We have also made progress in blocking leakages through the introduction of electronic payroll and cashless payments from various MDAs. We will continue to roll this out across the states and we expect to see continued progress in controlling our recurrent expenditure as a result.”

He said it is part of the diversification plan of the state to drive agriculture and forestry sectors “where we see significant opportunity to increase productivity and State revenues.”
“We are aware that our border towns have grown significantly over the years and we are engaging with neighbouring states to ensure that we are able to capture the revenues that are due to us from the residents of these towns.
“We have built and upgraded many roads during the first administration that will generate opportunities for increased revenues from Signage for example.”

Amosun, Governor of Ogun state

The Commissioner, however, pledged that the government would continue to pay workers despite falling revenues from the Federation Account, as well as repay debts promptly.
“Despite current pressures, we are the only State in the Federation that opted to repay our bailout funds over 10 years instead of 20 years because we believe our initiatives to diversify the economy and grow revenues will continue to bear fruit.”
Oyo State government has also expressed its commitment to the workers’ welfare, saying it would not retrench despite its fiscal challenges.

According to Layinka, both the state and the staff members have mutually agreed to “a staggered salary payment strategy which will see a certain category of workers from level 01-12 receive their full pay within the limits of monthly resources available to us from the Federation Account. Specifically, we have agreed to expand ninety percent of our monthly allocations to the payment of workers’ salaries while the remaining ten percent in addition to our monthly IGR will go to other operational services as well as our obligation to capital and infrastructural development of our state.”

To improve IGR, he said the state government has restructured the Board of Internal Revenue to become a disciplined, competent and data-driven organization equipped with state of the art facilities with which to generate the maximum possible revenues from those individuals and companies that ought to pay their taxes to the government. The new organization will consequently be able to appropriately determine and forecast accruable revenues as well as scientifically define the right tax regimes across the board. This will significantly achieve a dramatic improvement in our capacity to meet our financial and service delivery obligations to all stakeholders.

Al-Makura

He said the government has reduced MDAs from the former unwieldy 23 to a more manageable 13 ministries with a view o cutting cost.
The state also plans to increase the level of awareness of the people towards paying taxes.
He said if Lagos-Ibadan expressway is completed it would also attract business opportunities to the state.

Therefore, “the government has strengthened and continues to optimize the system and operations of the Bureau of Public Private Partnerships in order for it to drive the traffic of direct foreign investment into the state,” he said.
Attempt to speak to the Osun State government’s spokesperson, Semiu Okanlawon, was unsuccessful. He neither picked his calls nor responded to SMS.
Whatever the case, governors and their cabinets are faced with an urgent task of raising revenues and reducing the fiscal pressure.

The BudgIT report recommends an urgent reduction of states’ operating costs, including significantly slashing unreasonable overheads bills in order to free up more spending for social infrastructure.
The report proposed that IGR should sufficiently cover personnel and overheads costs of government while federation allocations should be directed at social schemes such as the building of schools and roads.
“Accordingly, debt should be invested only in self-liquidating projects,” the report stated.