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THE STATES AND FOREIGN DEBTS
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The states must cut down on cost of governanceand free resources for development
Amid continuous depreciation in the value of the naira, state governments across Nigeria have ramped up their borrowing from international lenders. In just about six months, bilateral borrowing has soared by 64 per cent resulting in $463 million financial hole. The loans were secured by 23 states from various international sources, including China’s Exim Bank, France’s Agence Francaise Development (AFD), Japan International Cooperation Agency, and others. If these loans were driving development and economic growth in the states, there would be less outcry. The rising debt portfolio is causing increasing anxiety because they are mostly huge liabilities for the people.
According to the Debt Management Office (DMO), Abia, for instance grew its bilateral loans to $3.82m; Adamawa grew to $4.75m; Akwa Ibom grew to $3.82m while Bauchi went up to $3.82m. The frail economy of Cross River is in the red to the tune of $46.85m; Ebonyi, $31.29m; Enugu, $4.75m; Imo, $26.04m; Jigawa, $864,535; Kaduna, $91.47m and Kano, $24.39m; Ogun, $32.29m, and Lagos, $130.67m. There is no doubt that the value of the dollar-denominated loans is increasingly exponentially because of the steady decline in the value of the naira. The directive from the Central Bank of Nigeria (CBN) to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market last June has plunged the exchange rate from 471/$ to 750/$ by the end of June and has continued its downward trajectory.
In addition to foreign loans, domestic debts in many of the states are mounting. From N3.03 trillion in 2015, their collective debt profile together with that of the FCT climbed to N5.28 trillion in the second quarter of 2022. While borrowing could be healthy for the economy as it may help to ramp up vital infrastructure for economic growth, there is little evidence on ground that the funds are being properly utilised. 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 revenue from Abuja.
The rising debt profile raises serious concerns, as most of the states have feeble revenue base, too weak to service the debts. The governments 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 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 last year 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. So many of them 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.
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 many 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. 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.