Nigerian States and their debt burden

With domestic debt profile totaling N3.4trillion, Nigerian states and the Federal Capital Territory are all struggling under heavy debt burden in the midst of infrastructural deficit.

Most of the states are also unable to meet up with overhead costs, needs are piling up and more so, most cannot meet up with the proposed minimum wage.

Recently, the Nigerian Labour Union (NLC) had led workers in a nationwide strike 27^th September to push for pay an  increase in the national minimum wage to N50,000  from its current N18,000.

Presently minimum wage across states of the federation stand at N18,000, while only Lagos State is N2,000 higher. Many states have not been able to meet up with the N18,000.

The industrial action was however called shortly before Nigeria’s 58^th independent anniversary but the NLC has issued a fresh threat and may call its members to down tool by 6^th of November.

Already most states are running under heavy debt profile with the rich states topping the chat.

For instance, Lagos State according to the Debt Management Office’s(DMO), March 2018 record, is owing a whooping N517.3bn, about half of its 2018 budget of N1.046tr.

Meanwhile, the state has embarked on several development projects over the years which may explain the reason for huge debt profile.

Home to about 20 million people, the state has overstretched its infrastructure already and there must be a constant upgrade to avoid a possible infrastructure collapse.

Nigerian States and debt profile

STATE DEBT (Billion =N=) POSITION

Source: Debt Management Office

Meanwhile, the state generated a total of N141.96bn internally in the first quarter of 2018, about N47 billion each month of the quarter.

Oil-rich Rivers State occupying the third most indebted state position behind Delta State, has a total of N191.1billion  debt but the south- south state may not be doing badly as it tops the chat of the Fiscal Sustainability Index (FSI) due to its robust revenue profile and manageability recurrent  expenditure.

With a total revenue of N209.12bn in 2017 and N141bn expenditure obligation  in the same year, it shows the state is relatively stable and may not need to borrow to fulfill its obligation according to proshareng.com.

Rivers State, an oil-rich state also draws huge amount from the Federal Account Allocation Committee (FAAC) allocations and given that in 2018, its recurrent expenditure is expected to fall to about N132bn, the state still, should not have difficulty in paying its way forward.

However, Lagos State dropped from 2^nd place to 4^th on the Fiscal Sustainability Index according to proshareng.com. With the highest IGR, the state is able to forge ahead.  For instance, available records show that in 2016 IGR totaled N287bn higher than N268.2 it had raised internally in 2015, the state is planning  N305bn or N25bn monthly.

Though not drawing too much from FAAC, Lagos  in the first half of 2017 drew only  N6.6bn monthly, the state is still able to meet up with monthly obligations.

According to further research, Osun State ranks 35 of 36 states on the Fiscal Sustainability Index and the south west state may remain in the woods for some time with a total debt profile of N135.8bn to occupy the fifth position on the debtor states list.

The outgoing state Governor Rauf Aregbesola had in December 2017 presented a budget of N173.9bn to the Osun State Assembly. The agrarian state had over the years embarked on massive infrastructural investment, opening up roads to connect the rural areas whereby easing movement of goods and services. With a debt profile representing about 78% of the current budget, the state may need to strengthen its IGR drive and perhaps create more jobs to increase earnings from tax. Definitely, it may not be able to afford the new minimum wage being agitated.

In its own situation, Cross River State  which is the sixth most indebted state has proposed a budget of N1.3tr which many have seen as rather ambitious. With a debt profile of N124,9bn, the state is operating a poor fiscal management. With inefficient IGR collection, it may not be able to meet up with its responsibilities as expected.

Nigerian states must look further inward, cut down on borrowing and drive IGR to stay afloat in the coming months.

Ogun State is occupying the 11^th position on the debt profile with N104.9bn being owed. The state under Senator Ibikunle Amosun had embarked on massive infrastructural project to upgrade its facilities.

For instance, before his first term in office, Abeokuta had remained the usual rusty rock city but seven years down the line, the state capital and other major towns have been upgraded but one thing to worry about is the huge deficit the next governor is coming to meet.

Meanwhile, next to Lagos on IGR is Ogun State. With highly industrialised Otta-Agbara axis, the state is blessed with a concentration of performing industries which had been a source of help to the state’s flourishing economy.

Ironically, that axis which is the goose that lays the golden eggs, has a huge infrastructural deficit as its roads have virtually collapsed due largely to misplaced priorities.

Meanwhile, Lagos State accounts for about 36% of total IGR generated in Nigeria down from 37% previously.

Lagos, Ogun, Delta and River States are toping the IGR chat per capital while collection efficiency in Kano is poor despite its huge market. The north western state and commercial centre of the northern Nigeria could only collect N3,139 per head in 2017 slightly higher than the 2016 record of N2,367.

However, Kwara State in the north central may not be doing poorly after all as it generates per capital IGR of N5,969 per head implying the state is deliberate and aggressive in its drive to sustainability.

Averagely across the states, the IGR uptake is N3,818 per head while collection is efficient in just 10 states where IGR is above the statewide average.

However, while some have argued that some states are not so viable, it is evident in their IGR drive when juxtaposed with ongoing development projects and debt profile.

The least performing states going by IGR include Bauchi State with N78bn debt, Katsina State with a total of N30.8bn, Borno State owing N77.5bn, Kebbi, with N53.8bn and Yobe State with N27.3bn all in the north west and north east geo- political zones.

The state governments in the above states must be creative enough to develop innovative policies around tax collection, create jobs and develop sustainable infrastructure rather than waiting for monthly federal allocation. They must be creative in the years ahead to avoid generating more debt.

Meanwhile, Anambra State is the least indebted state in Nigeria as at March 2018. With just N2.6bn, the state Governor Willie Obiano had inherited a monthly IGR of N500m and within five years the IGR had moved up to N1.5bn monthly according to Mr. Michael Okonkwo, the Managing Director of Awka Capital Territory Development Authority.

Okonkwo told newsmen that the Authority’s revenue profile also increased from N13m to N20m monthly.

However, states not doing well in their economy may need to borrow a leaf from Anambra who with the lowest debt profile is also able to embark on capital projects and equally generate N1.5bn monthly.

In all, states must look inward and develop sustainable income generation framework and reduce borrowing. They must ensure IGR drive and improve on infrastructure in order to ensure sustainable economy and prosperity for the masses.