Thursday, 28th September 2023

Near-bankrupt states, unviable projects await 18 new governors

By Geoff Iyatse
17 April 2023   |   4:26 am
From heaps of debts to tattered revenues, unsustainable wages to poorly-equipped civil servants and dead assets to loads of contingent liabilities, the 18 new chief executives of states who will be taking oaths of office on May 29 have their jobs clearly cut out for them.

· Incumbents add N2.16tr to states’ legacy debts
· Debts balloon from N947.4b to N3.1 trillion in eight years
· Yearly IGRs about 20% of accumulated liabilities
· Incoming states’ state executives to service decade-old loans
· States burdened with unviable projects
· Akwa Ibom still servicing foreign facilities incurred during military era, at N22/$

From heaps of debts to tattered revenues, unsustainable wages to poorly-equipped civil servants and dead assets to loads of contingent liabilities, the 18 new chief executives of states who will be taking oaths of office on May 29 have their jobs clearly cut out for them.

But it may not be rosy reception for the majority of them as legacy fiscal burdens wait patiently for their resumption.

While some of them may be looking forward to making exceptional marks in the affairs of the states to stand a chance of re-election or scale up their credentials for higher offices, a myriad of decade-old challenges created by their predecessors are hard nuts they will have to crack.

Whereas debt is a major source of financing public expenditure, the outgoing governors are not leaving behind heaps of debts but also tattered revenues, which could potentially impede the debt sustainability risks of most of the sub-national units.

Some of the debts, according to financial statements reviewed by The Guardian, were incurred for failed projects pre-dated 1999 when the current democratic dispensation was birthed. But the incumbents have made the already-bad situation worse with ill-conceived debts, such as salary supports, whose tenors spread across over two decades.

Overall, the 18 governors that have completed their constitutionally-allowed two tenures plus Bello Matawalle of Zamfara, who could not secure re-election, will pass on a whopping over N3.2 trillion to the new state handlers.

The 18 states’ debt is about 42.3 per cent of the cumulative N7.34 trillion owed by the 36 states and Federal Capital Territory.

Overall, the affected 18 sub-national entities’ debts rose 232 per cent, from N947.4 billion outstanding as at December 2014 – a few months before the outgoing state chiefs took the reins. The amount owed to both local and foreign institutions and individuals has ballooned by N2.16 trillion to hit N3.1 trillion at the close of last year.

But with disclosure by the Debt Management Office (DMO) to the effect that some of the states’ records are not up-to-date in their filings, the actual debt stocks of the states might be higher than N3.2 trillion.

The debt office, in its recent report, listed Katsina, Taraba and Rivers as states whose debt submissions were last updated on either September 30, 2022, or September 30, 2021. The three states are changing political leadership in the next two months.

Year-on-year (Y/Y), the affected states have increased their indebtedness (albeit those documented) by approximately 15 per cent. As at December 31, 2021, their combined exposure was N2.7 trillion. But last year, a period they were expected to switch to an aggressive fiscal consolidation ahead of transition, the majority of them incurred fresh debts, increasing the burden of their successor by an additional N407.6 billion in 12 months.

Indeed, the total liabilities of the states might be quite higher than the debt portion. The Guardian could not access the most recent financial statements of the majority of states. Yet, the audited financial reports of 2020 reviewed may be a telling reflection of the depth of the enormity of the challenge heaped on the incoming chief executives.

For instance, as at December 31, 2020, the total contingent liabilities of Akwa Ibom, which will be welcoming a new governor next month, was N97.76 billion. According to its audited financial, which was sourced from the state’s website at the weekend, outstanding pensions and gratuities totalled owed at the end of 2020 were N28.98 billion while liabilities to contractors were estimated at N64.78 billion.

If the net contingent liabilities of the state in the last two years were zero and Udom Emmanuel’s administration has not added to the conventional debt stock since the beginning of the year, the total financial liabilities the governor of the oil-rich state will hand over to the next administration will be N337.2 billion (pending N239.4 billion debt inclusive)

But the finances of the states are even more frightening. The revenue of Kogi (though the state is not due for power shift till next year), as revealed by its 2020 audited financial report, is symbolic of the crisis staring at some of the states, in the face of dwindling Federation Account.

In the five years spanning 2016 to 2020, for instance, Kogi’s total revenue stood at N403.23 billion. Its share of the Federal Account Allocation Committee (FAAC) and value added tax (VAT) alone was N302.5 billion or 75 per cent of the total revenue.

In that half-decade, Kogi earned a total of N65.1 billion from non-tax and tax revenues – category governments across the world rely on mostly to fund their activities. In 2020, the Yahaya Bello administration’s earnings from aids and grants (N22.6 billion) was 30 per cent higher than its total internally-generated revenue (IGR).

What appears like a fiscal trough for the Confluence State, however, is a lens from which many people now see the state governments. And that is not farfetched.

Last year states’ IGR data is yet to be released. But if it follows the historical trend, it may not be significantly higher than in 2021 when the 18 states in question pooled a total of N552.2 billion as IGRs. In the same year, the combined IGRs-to-debt ratio of the states was 20 per cent, suggesting that the state would need to save the entire IGRs for half a decade to clear its debts supposing interest rates are waived and the debt level remains constant.

And while the debt accumulation of the states in question rose by over threefold in eight years, their yearly IGRs expanded by only 98 per cent in seven years, from N283.7 billion in 2014 to N552.2 billion in 2021.

The revenue-expenditure mismatch is a major challenge some of the incumbents have had to contend with. The majority of the governors snubbed calls on them to adopt leaner governance structures that would reduce their operating expenses and resorted to borrowing to fund bloated payrolls.

Taraba government, which is awaiting a new governor, carries in its 2021 financial report a salary bailout facility of N8.38 billion at the close of the year. In the accounting year, the government incurred an interest expenditure of N38.54 million on the facility, which is spread across a tenor of 20 years (240 months).

It is not only the salary support of Taraba that attracts such a lavish tenor. There is also a budget support facility of N17.43 billion with a 360-month (or 30 years) tenor, implying that the facility would remain on the state government’s book in the next three to four administrations.

Perhaps, the outgoing governors are serving their successors with the same measures they were served. As of 2020, Akwa Ibom State Government was still sitting on debts incurred for water and health projects that started as far back as 1994. The original debts were in euro and other foreign currencies, and they were secured when the dollar-to-naira exchange rate was about N22.

At the close of the 2020 financial year, N1.92 billion was still outstanding on certain loans secured from the African Development Bank to fund the Akwa Ibom State First Multi-State Water Project and the Akwa Ibom State Health System Development. Of the N18.2 billion external loans reported by the state two years ago, the most recent was incurred in 2011. Still, much of the debt will be transferred to the next administration.

The Akwa Ibom water project, according to AfDB, was approved on October 20, 1992, and completed on December 31, 2007, to provide a 262,000 m3/d and 126,000 m3/d of potable water supply to residents of Cross River and Akwa Ibom. It would also provide equipment for national reference laboratories to monitor the water quality of the country’s water bodies and help maintain international standards of the treated water.

A research work published by the International Journal of Applied Environmental Science in 2018 passes a verdict on the success of the water projects in Akwa Ibom. According to the research carried out by Aniekanabasi Okon of the University of Calabar and others, there was no pipe-borne water supply in both upland and coastal communities of the state.

The study said 73.8 and 55.71 per cent of households in the upland and coastal communities respectively, obtained drinking water from boreholes. It added that 16.67 per cent and 41.9 per cent in the upland and coastal communities respectively, obtained their drinking water from surface sources streams, rivers or wells. A few households, 6.19 and 5 2.38 per cent households in the upland and coastal communities respectively, it added, resort to rainfall for drinking water.

From northwest to southwest and from northeast to southeast, state projects are rarely executed with equities but often with opaque debt. There are thousands of replicas of the Akwa Ibom water projects. Billions of naira are sunk in the projects, passed on from one generation to another to pay while the people live on without the benefits of the public utilities for which the money was borrowed.