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Ugolor: Governors taking advantage of weak assemblies to borrow aggressively


David Ugolor

Public affairs analyst and human rights crusader, Rev. David Ugolor, told ALEMMA-OZIORUVA ALIU, that there is need for states to explore the United Nations Conference on Trade and Development (UNCTAD) Principles on Loan Procurement.

• We Need To Explore UNCTAD Principles On Loan Procurement
• Most States Loans From Capital Market Not Judiciously Utilised

The debt burden of most states is staggering, yet they are still negotiating for more loans. Why so?
The debt profile of most of the states is very scary and they are on the verge of going into insolvency, if not already insolvent. If you look at states’ debt profile for the last 10 years, they all have one common feature, which is that they keep rising even though substantial resources are appropriated yearly for debt servicing. And for those that borrowed from the capital market, it is even worse because the debt servicing is deducted at source through the Irrevocable Standing Payment Order (ISPO), normally issued by state government when they embark on borrowing via State Bond Issuance. The figures produced by the Debt Management Office (DMO) for 2015/16 clearly show that the states’ debt profile requires urgent attention, and if the Federal Government decides to carry out a honest and transparent Debt Sustainability Analysis (DSA) on all the 36 states including the FCT, the result will be very shocking and this is really not good for the country. You probably will like to know what are the causes of the huge debts, which is not hidden at all because most state governments embark on massive borrowing to meet their recurrent expenditure without following basic rules, coupled with the poor institutional frameworks at the states’ level.

The governors are using their excessive powers and taking advantage of weak legislative bodies at the states’ level and poor citizens/opposition to resort to aggressive borrowing to meet their political commitments, which do not meet any development objective. The recurrent expenditure in all the states contribute to their huge debt profile, and unfortunately the political will to carry out radical reforms that will ensure transparent use of public finance hardly exists. With rising recurrent expenditure, poor debt management framework and governance at the states level, the debt profile keep increasing. In addition, the poor revenue flow from the oil income due to falling oil price at the international market, has also affected states’ ability to meet their debt obligations, thereby increasing the debt overhang.

For example, in 2014, the total debt of Delta State was N216.78bn and in two years (as at December 31, 2016) according to Debt Management Office (DMO) the debt has increased to N241bn, even though within the same period substantial resources were appropriated for debt servicing by the House of Assembly in 2015 and 2016.

The debt also keeps rising with low income from monthly allocation due to several reasons ranging from Niger Delta crisis and huge wage bills and poor Internally Generated Revenue (IGR). Apart from Lagos State that has been able to embark on radical tax reforms, which have led to increase in IGR, other states have poor records. The Delta State example provides a good case of how the current debt profile in all states keep rising and the absence of credible debt management frameworks make it difficult to address the problem.

It appears states find it difficult to key into the public procurement platform?
Poor procurement policy at the states’ level is a major issue that also requires the Federal Government’s attention. Most states have no procurement laws like the Federal Government, and even those that have procurement laws don’t implement it. This is the critical problem that will need to be addressed.
Substantial loans procured by states government from the capital market were not judiciously utilised for the purposes they claim to use them for, and these would not have happened if states’ Houses of Assembly were working as the public eye. If the procurement rules were followed the current debt profile would have been avoided and possibly the resources would have gone into a more productive development project that will promote economic growth and reduce poverty. The poor compliance by state governments to procurement laws, and the absence of proper Fiscal Responsibility Framework that will guide the way resources are used, contributed immensely to undermining the debt management system in most of the states.

Most of these loans are approved by state assemblies without serious scrutiny. How bad can it get?
This is really a big problem in all the states, and most governors have exploited the situation to embark on massive borrowing. The constitution is very clear about the role of state assemblies in approving the annual budget, which determines the borrowing agenda. Most assemblies are very weak, and without capacity to undertake independent scrutiny of approval requests from their governors. Again, that brings us to the problem of how these people got their nominations before being elected as legislators. They are not able to exercise independent authority as prescribed in the constitution because of their political allegiance to the governors, who control enormous resources and power.

Normally, when Houses of Assembly want to exert their constitutional powers, they face a backlash from their state governors. Some assemblies that make attempts to resist such governors either get their leaders impeached, or affected lawmakers fail to get re-elected.

The Houses of Assembly’s relationship with the public in most states is very poor and they hardly engage the public in discussions around the issue of debt contraction. The absence of public participation in loans procurement, through public hearings provides huge opportunity for the executive to ignore existing loan procurement guidelines. This is a typical agency- principal problem associated with loan contraction in the country.

We need to explore the United Nations Conference on Trade and Development (UNCTAD) Principles on Loan Procurement, which encourages both borrowers and lenders to be more responsible in the loan negotiation.

NEITI’s first quarter report this year indicates that Edo State has the lowest debt profile in South South, but the current administration has got approval for more borrowing is this healthy for the state?
I don’t think to borrow is a bad thing at all. It is the purpose of the loan that is of concern to the public. If you scan through Edo State’s debt profile, you will agree with me that we need to change the structure, otherwise the debt will become unsustainable and that will certainly affect the capacity of the present government to embark on capital projects that will impact positively on the people, particularly when you consider Governor Godwin Obaseki’s campaign commitments to the people.

For example the government during its meeting with civil society groups, promised to create an enabling environment for the private sector and government to provide jobs.  For me that can only happen if resources are available, but the reality is that things are not very rosy due to some of the problem I mentioned earlier on.  What therefore is important is for the governor to disclose the purpose for borrowing, and also carry along the public and the state House of Assembly to ensure that there are public engagements, and the House of Assembly carries out its constitutional responsibilities, particularly when it has to do with loan procurement.

The type of loan and where the government plans to borrow from is also something we need to discuss so that at the end of the day, there is consensus regarding the value of the loan, and that will take care of the purpose, loan repayment policy, and other critical issues that are of public interest.

The government needs to also share with the public, the current Debt Sustainability Analysis (DSA), and debt profile to guide public debate on the viability of procuring loans. The purpose of the loan is very important, so the governor should reach out to all stakeholders and engage them in a public debate before proceeding to procure loans. Since the governor is an agent of the people, he should use the goodwill he enjoys from the Edo people to provide a roadmap on how the loans will be used. By doing that, he will be creating an environment that will not be conducive for misinformation.

But most governors do not subject these loan proposals to public scrutiny. Is that the way to go?
Certainly not. And I think both the commercial banks and the Federal Government that provide these loans are taking huge risks. If you ask me, my candid advise to the banks is that they should be more careful in giving out loans to irresponsible governors that are not accountable. We are already looking at a framework that will help the banks and the public to arrive at a judgment particularly on critical governance issues. States where their assemblies are weak and incapable of providing the check as required by the constitution should not enjoy the access to loans.

Most governors use these loans for huge capital projects, whose actual values are not verifiable by stakeholders, including opposition politicians and ordinary citizens. What can be done about this?
The Fiscal Responsibility Framework would have helped to address some of these problems, but most of the governors are clever crooks and they just devise means to avoid enacting the law, or fail to implement where they exist. For example, Delta State has a Fiscal Responsibility Law, which provides a very robust fiscal guidance on how to borrow but the governors just ignores the law with silence or complicity from the House of Assembly. If you look at the state’s debt profile, the situation is really bad for the people. With such a huge debt and poor capital project implementation, one begins to wonder where all the resources went to and how all that happened.

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