As State Debts Skyrocket, DMO Enforces Rules of Borrowing
While state governments in Nigeria find it difficult to bridle their appetite for spending, they are unable to generate enough revenue to satisfy their needs. So, as debt resulting from borrowing grows, the government at the centre takes proactive moves t
To reduce their exposure to huge indebtedness, the state governments can no longer borrow from the banks or the bond market without the express approval of the minister of finance acting on the advice of the Debt Management Office
It is no longer news that no state government in Nigeria must approach any bank for loan or visit the bond market to raise long-term capital without first getting the consent of the federal government through the minister of finance. While this may be perceived as restrictive and infringing on the rights of state governments the argument on the part of the federal government is that the magnitude of debt by the state is becoming alarming. “To reduce their exposure to huge indebtedness, the state governments can no longer borrow from the banks or the bond market without the express approval of the minister of finance acting on the advice of the Debt Management Office,” Patience Oniha, Director General of the Debt Management Office, said. Another reason the federal government must give approval to states before they proceed to add to their mounting debt burden was that loans owed by most state have been converted into bonds, which means they will be serviced from the allocations due to them from the joint federation account.
Debt Data sourced from DMO puts the domestic debt of all the 36 states as well as the federal Capital Territory (FCT) at about N3.35trillion as of December 31, 2017. A three-years tracking of the total domestic debt of all the states and the FCT, showed that the burden has risen consistently. Total domestic debt in 2015, which was put at about N2.50 trillion, increased to N2.96trillion, representing 18.4 per cent growth. Growth decelerated to 13.2 per cent from N2.96trillion in 2016 to N3.35trillion in 2017. According to the DMO, the 36 states and the FCT raised the nation’s domestic debt by N1.64trillion in the past three years. The debt stock data released by the National Bureau of Statistics (NBS) revealed that Lagos has the largest debt burden. The state’s debt stock is 35.61percent of the country’s foreign borrowings. Kaduna (5.79 per cent), Edo (5.64 per cent), Cross River 4.08 per cent and Enugu, 3.23 per cent, are all trailing Lagos. The spread of domestic debts is more even with Lagos taking up 10.85 per cent of the total local debt. Sokoto state borrows little locally. It owes just 0.78 per cent of the aggregate borrowing within Nigeria. Interestingly, the federal government owes 78.23 per cent of the country’s entire debt stock as of December 31, 2017, while the states accounted for 21.77 per cent. Nigeria’s foreign debt profile stands at $18.9 billion and its local borrowings amounted to N3.35 trillion.
IGR Revenue generated by the states from internal sources remains a far cry compared to the debt burden hanging around the neck of most of the states, though statistics supplied by NBS, indicates that it has been on the increase at least in the last three years. Internally generated revenue (IGR) figure in 2015 by all the states and the FCT, stood at N682.67 billion, representing a growth by 18.4 per cent compared to N801.95 billion recorded in 2016. IGR growth dropped to 16.12 per cent from N801.95billion to N931.23 billion in fiscal year 2017. On the average, each state in Nigeria generated an IGR of N25.17 billion monthly in 2017, compared to average debt profile of N90.5 billion, which leaves each state with N65.3 billion deficit in fiscal 2017. Thirty-two states recorded growth in IGR while four states which include (Akwa Ibom, Bauchi, Osun and Taraba) recorded a decline at the end of 2017. The NBS disclosed that Osun State 2017 IGR figure only accounts for nine months, which it said would be updated for the remaining three months when available.
FAAC As of end of May 2018, the three tiers of government have shared about N3.28 trillion through the Federation Account Allocation Committee (FAAC). The figure showed an increase of 41 percent over N2.33 trillion distributed within the same period in 2017. Analysts have attributed boom in oil revenue to increase in distributable revenue among the three tier of government in 2018. Though the figures on a monthly basis have not been predictable, it increased substantially from N638.09 billion in April to N701.02 billion in May.
“FAAC disbursed the sum of N701.02 billion to the three tiers of government in May 2018 from the revenue generated in April 2018,” NBS disclosed in June when the figure was released. The amount disbursed comprised of N612.64 billion from the Statutory Account, N87.97 billion from Valued-added Tax (VAT) and N418.88 million being excess bank charges recovered. Federal government received a total of N289.04 billion from the N701.02 billion. States received a total of N181.96 billion and local governments received N137.33 billion. The sum of N49.76billion was shared among the oil producing states as 13 per cent derivation fund. Revenue generating agencies such as Nigeria Customs Service (NCS), Federal Inland Revenue Service (FIRS) and Department of Petroleum Resources (DPR) received N4.61billion, N8.67billion and N4.06billion respectively as cost of revenue collections. Further breakdown of revenue allocation distribution to the federal government o revealed that the sum of N247.12billion was disbursed to the FGN consolidated revenue account; N5.25billion shared as share of derivation and ecology; N2.62billion as stabilization fund; N8.82billion for the development of natural resources; and N6.05billion to the FCT Abuja. On the other hand, the ministry of finance, through the FAAC, distributed about N5.64trillion revenue generated in 2017 to the federal, state and local governments. The state governments, which exclude FCT Abuja got about N1.52trillion between January and November in 2017, according to data sourced from the website of NBS. States, which include Bayelsa, Delta, Edo, Imo, Ondo, Rivers, Akwa-Ibom and Lagos, classified as oil-producing states shared an additional N341.91 billion 11 months of that year as derivation revenue. The figure represents 6.06 per cent of the total revenue distributed by the FAAC in the review period.
Intervention The federal government has empowered the Minister of Finance, Mrs. Kemi Adeosun, as well as the DMO to censor applications for loan from states to determine if they meet the obligatory requirements “The criterion is that the cost of servicing the debt, including the new one being requested, should not be more than 40 per cent of their revenue in the past 12 months. What we recognise as the states’ revenue is what they receive on monthly basis from the Federation Account, because this can be easily verified,” Oniha said. The DMO boss disclosed that the DMO recently turned down requests to borrow from a few states, because approval would have taken them beyond the threshold of servicing debts with more than 40 per cent of the revenue. In a few cases, the DMO has had to advise the states to reduce what they wanted to borrow to ensure that it stayed within the limits stipulated by the Sub-national Borrowing Guidelines articulated by the agency. The guidelines stated, “Given the country’s recent experience with an unsustainable public debt portfolio, it is important that measures are taken to prevent a relapse into debt unsustainability. “This challenge is quite demanding, because the federal and state governments need to mobilise substantial resources in order to fund the growth and development of the economy. “In this context, it is necessary to have sub-national borrowing guidelines in addition to the existing borrowing provisions, so that the states could be assisted to be prudent in their borrowing and debt management activities”, Oniha added.