Rising debt profile: States’ debts exceed 50% of their annual revenue –FRC

•Owing over N5.8trn

 

 

In this report, PAUL OGBUOKIRI notes that the 36 states of the federation and the Federal Capital Territory (FCT) Abuja owe over N5.8 trillion out of Nigeria’s total debt profile of over N25.7trillion and that most of the states’ debts exceed 50 per cent of their annual revenue

 

 

According to the Debt Management Office (DMO), the total Public Debt Data as at Nigerian states and federal debt stock data as at June 30, 2019 reflected that the country’s total public debt portfolio stood at N25.70trillion. Further disaggregation of Nigeria’s total public debt showed that N8.32trillion or 32.38 per cent of the debt was external while N17.38trillion or 67.62 per cent of the debt was domestic.

 

Similarly, total domestic debt was N3.97 trillion with Lagos State accounting for 12.08 per cent of the total domestic debt stock while Yobe State has the least debt stock in this category with a contribution of 0.68 per cent to the total domestic debt stock. DMO disclosed that the total public debt grew marginally by 2.30 per cent when compared to the figure of N24.387 trillion (US$ 79.437 billion) as at December 31, 2018. It said the increases continued from Q1 when an increase of N560.009 billion in the total public debt was recorded, saying increase in domestic debt which grew by N458.363 billion was largely responsible.

 

“Increases were recorded in the domestic debt Stock of the FGN, states and the FCT. External debt also increased by N101.646 billion during the same period.

 

“In relation to the Debt Management Strategy, the Ratio of Domestic to External Debt stood at 68.49 per cent to 31.51 per cent at the end of March 2019. The total public Debt to GDP ratio was 19.03 per cent which is within the 25 per cent debt limit imposed by the government.”

 

According to the National Bureau of Statistics (NBS), debts owed by states are in multiple categories: foreign debt, domestic debt, Central Bank of Nigeria bailout funds and the Budget Support Facility arranged for them by the Federal Government. Most states’ debts exceed their annual revenue Out of the huge debt profile of the country, the total domestic debt of 36 states in Nigeria as at end of the Q2 2019 stood at N3.8 trillion.

 

Lagos State, which has the highest domestic debt among all 36 states, also has the highest foreign debt. Other states with high foreign debts include Kaduna, Edo, Cross River and Ogun, the Debt Management Office, DMO, said. Experts say most of the states’ debts exceeded 50 per cent of their annual revenues.

 

The Fiscal Responsibility Commission (FRC) had since 2016 warned that the debt profiles of about 18 states exceed their gross and net revenues by more than 200 per cent while Lagos, Osun and Cross River states record over 480 per cent debt to gross revenue. It said the debt may have increased by 2017 since there were no efforts by the states to clear them. FRC said the development was contrary to the guidelines of the Debt Management Office on debt sustainability. The guidelines said that the debt status of each state should not exceed 50 per cent of the statutory revenue in the previous 12 months.

 

The report stated: “In the light of the DMO’s guidelines on the Debt Management Framework, specifically, sections 222 to 273 of the Investment and Securities Act, 2007 pertaining to debt sustainability, according to the guidelines, the debt to income ratio of states should not exceed 50 per cent of the statutory revenue for the preceding 12 months.”

 

An analysis presented in the FRC report, however, showed that most states flouted the directive. In fact, the debt status of many states exceeded the debt to revenue ratio by more than 100 per cent.

 

The analysis was based on the debt profile of the states as of December 31, 2016.

 

The states with the highest debt to gross revenue ratios were Lagos (670.42 per cent), Osun (539.25 per cent), Cross River (486.49 per cent), Plateau (342.01 per cent), Oyo (339.56 per cent), Ekiti (339.34 per cent), Ogun (329.47 per cent), Kaduna (297.26 per cent) and Imo (292.82 per cent). Others were Edo (270.8 per cent), Adamawa (261.96 per cent), Delta (259.63 per cent), Bauchi (250.75 per cent), Nasarawa (250.36 per cent), Kogi (221.92 per cent), Enugu (207.49 per cent), Zamfara (204.91 per cent), and Kano (202.61 per cent). The debt to net revenue ratio of the states put some of the states in even more precarious situations.

 

The debt to net revenue of Lagos, for instance, is 930.96 per cent, while that of Cross River is 940.64 per cent. States whose debts did not exceed 50% of their revenue According to the NBS report, the only states whose debt did not exceed the 50 per cent ratio by more than 100 per cent are Anambra, Borno, Jigawa, Kebbi, Sokoto, Yobe and the Federal Capital Territory.

 

The report noted that debt to revenue ratio is very important in debt analysis as it can give an indication of the capacity of the debtor to service and repay the debt. However, the FRC noted that it should not be concluded that a state had over-borrowed because its debt to revenue ratio was more than 50 per cent.

 

 

It stated, “It should be noted that the fact that some states exceeded the threshold of 50 per cent of their total revenue is not an indication that they over-borrowed as the debt limits of the governments in the federation are yet to be set.

 

“Furthermore, only total revenue is used for the foregoing analysis as comprehensive data on the states’ Internally Generated Revenue were not available. In any case, the IGR on the average is not more than eight per cent of the states’ total revenue except for Lagos State. In essence, the non-inclusion of the IGR may not distort the result of the analysis.

 

“Therefore, there is a need for each of these states to work towards bringing their respective consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee general public debt sustainability in the country.”

 

Meanwhile, figures from the NBS indicate that Lagos State had the largest share of the foreign and local debts among the 36 states of the federation and the Federal Capital Territory. Lagos state’s foreign debt stood flat at $1.42 billion (N513.33 billion) in Q2 2019 when compared to the same period in 2018.

 

Following Lagos on the foreign debt profile is Edo state with $277.74 million while Rivers state followed on domestic borrowing with N266.94 billion, during the same period under review.

 

States with the highest foreign debt profile Lagos N479.04 billion, Delta N233.56 billion, Rivers N266.94 billion, Akwa Ibom N206.41 billion and Cross River N168.82 billion States’ total domestic debt The total domestic debt stock of the 36 states and FCT Abuja is N3.9 trillion as at June 2019.

 

Lagos State has the highest figure of N479 billion, Rivers State came second with N266 billion, Delta on the third position with N233 billion and Akwa Ibom forth with N206 billion and Yobe with the least domestic debt of N27 billion.

 

Any cause for alarm? Despite growing concerns over the country’s debt level, Minister of Finance, Budget and National Planning, Zainab Ahmed, said the challenge is not in debt level but how to raise revenue as an alternative. This came as the International Monetary Fund (IMF) said that Nigeria’s Debt-to-GDP ratio is good but too risky.

 

In an Independent Day report on October 1, 2019, the News Agency of Nigeria (NAN) described how Nigerian state debt profiles serve as impediments to democratic values and dividends. The report observed how successive governments accumulate debts for new ones serving as obstacles for the provision of capital projects.

 

 

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One Thought to “Rising debt profile: States’ debts exceed 50% of their annual revenue –FRC”

  1. Like!! Great article post.Really thank you! Really Cool.

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