STATES AND THE DEBT CRISIS
The states must trim the enormous costs of governance and free resources for development
The domestic debt outlook in many of the 36 states is increasingly darkening. From N3.03 trillion in 2015, their collective debt profile together with that of the FCT has climbed to N5.28 trillion in the second quarter of 2022. According to the Debt Management Office (DMO),Lagos State has the highest domestic debt stock of N797 billion, accounting for 15 per cent of the total sub-national domestic debt, followed by Delta State with N379 billion, and Ogun State with N241.98 billion as of June 2022. Jigawa, Ebonyi, and Kebbi States have the least domestic debt stock. What compounds the situation is that most of these debts being incurred for future generations of Nigerians are expended on projects that bring little or no returns on investment.
Yet, things will likely get worse with the ever-declining oil revenue from Abuja. According to the World Bank, the states would lose about N18.8 billion in oil and gas revenues in 2022, as worsening revenue remittance from the Federation Account Allocation Committee (FAAC) increases their budgetary pressures. The bank warned that many states would be unable to meet up with their expenditures, given an increase in their debt servicing expenditures.
Indeed, the rising debt profile raises serious concerns, as most of the states have feeble revenue base, too weak to service the mounting debts.“It invariably becomes a debt problem and possibly a debt crisis,” said the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf. “The government’s actual revenue can hardly cover the recurrent budget, which implies that the entire capital budget and part of the recurrent expenditure are being funded from borrowing. This is surely not sustainable.”
For many of the states, the situation is so dreary that they cannot even take care of half their needs. The Nigeria Governors’ Forum (NGF), the umbrella body for the 36 states governors, admitted recently that most states were already experiencing fiscal stress and that continued decline in their revenue from the federal purse might cause crisis in meeting their recurrent expenditures. States like Zamfara, Taraba, and many others are not only owing backlog of workers’ salaries, but they are also yet to implement the national minimum wage of N30,000 signed into law since 2019. This is in spite of the steady rise in the cost of goods and services. Food inflation is officially put at more than 23 per cent, the highest in 17 years.
Despite the misery in their doorstep, many of the states are still on a spending binge. The travel budget of a state governor is in most cases far bigger than the education budget of their state even when the schools within their jurisdictions operate under trees or are at best rag-tag enclosures with squalid infrastructure. Many of the state governments have scores of agencies and commissions which add no value to governance. Huge sums of money are expended annually on aides, with no defined jobs, what with Cross Rivers’ 38,000 personal assistants, and Zamfara that can hardly pay its teachers holding on to more than 3000 advisers and assistants. Besides, public funds are diverted to political activities while the burial and wedding ceremonies of family members of top public officers are turned into state carnivals at huge expense to the public.
What the current challenge calls for is not to borrow more money but rather to have a serious re-think of the fundamental assumption of the fiscal arrangements. The states must cut down on the enormous costs of governance and free resources for development and payment of salaries. They must create wealth to run their states as the template under which state governments exist as mere pay offices for redistributing the monthly proceeds of oil rent from Abuja is fast outliving its value.
