External debt profile overwhelms states

• Abia, Ebonyi, Jigawa lead poor IGR rendition list
• Aregbesola prescribes bailout for states
• NGE urges debtor-govs to explore avenues for payment

THE external debt profile of states with its servicing component may have compounded their inability to meet their statutory obligations, even as majority of them now have a yearly Internally Generated Revenue (IGR) base below the obligations.

Specifically, the sub-national debt profile as at June 2015, estimated at $3.3 billion, does not include domestic debt stock.

And out of the federation’s 36 states, only 24 have complied with the IGR rendition at the Nigeria Bureau of Statistics (NBS).

Out of this number, the 14-most affected states are: Adamawa, Bauchi, Benue, Ekiti, Imo, Katisna, Kebbi, Kogi, Nasarawa, Niger, Osun, Plateau, Sokoto and Zamfara.

Due to the huge debt profile, analysts at Afrinvest Securities Limited are in support of moves for a bailout from the Federal Government to avert consequent economic distortions and growth challenges.

In a note to The Guardian at the weekend, Afrinvest said the implications of the development on the overall economy would be significant, as the Gross Domestic Product (GDP) of the 12 states owing salaries account for 33.9 per cent of Nigeria’s GDP.

Again, this implies reduced purchasing power, which in turn will drag downwards household consumption expenditure and invariably weaken overall GDP for 2015.

Still, the weak consumer spending is expected to constitute a drag on household spending, which can affect Consumer and Industrial Goods sectors that account for a combined 56.3 per cent to market capitalisation.

An economist and Chief Executive Officer of Financial Derivatives Limited, Bismack Rewane, has opposed the tendency of government to borrow for consumption, especially in the midst of dwindling crude oil revenue.

But on the contrary, the Federal Government in recent times has leveraged on its sovereign status to borrow from the capital market to fulfil its recurrent obligations.

For example, CBN’s April 2015 Economic Report showed that 88.8 per cent of total expenditure by the Federal Government in April was utilised for recurrent purposes.

However, states and local governments, faced with the non-sovereign status and already high debt burden, which constrained their ability to access the capital market to raise more funds, have weak capacity to generate revenue internally. 

Meanwhile, Abia, Ebonyi and Jigawa states are also leading the group of nine other states, which have either poor record of IGR rendition to NBS or for the 2014 period.

The failure to report, according to analysts, may be due to poor book-keeping, outright negligence and issues of transparency in public finance, which have great implications for national economic planning.

According to NBS, of these 12 states, Ebonyi and Jigawa have not reported since 2012; Abia, since 2013; while nine others did not report as at June 2015.

“Our analysis of IGR for 2014 revealed that Lagos State alone accounted for 47 per cent of total IGR of the 23 states published by NBS. Three states accounted for about 70 per cent, while the remaining 20 states accounted for just 30 per cent of the total IGR,” the securities company said.

But the Governor of Osun State, Rauf Aregbesola, while lamenting the development, noted that the unsavoury situation started gathering steam two years ago, with increasing oil thefts, eventual slump in oil prices and concomitant phenomenal shortfalls from the federal allocations, which accentuated fund paucity.

In a statement to The Guardian, the governor said: “Starting from July 2013, when the June allocation for that year was paid, states lost suddenly, 40 per cent of statutory allocation from the Federation Account due to a very dubious claim of 400,000 barrels of crude oil theft daily.

“Although this claim was patently fallacious, the structure of administration of oil business in Nigeria did not provide any remedy.

The company, Nigerian National Petroleum Corporation (NNPC) and the minister in-charge were the claimants. Be that as it may, it is worth probing this claim further. 400,000 barrels of crude oil divided by the daily oil production of 2.6 million barrels of same is 15.33 per cent.

“How come therefore, that a 15 per cent sales/supply/production loss of crude oil resulted into 40 per cent revenue loss, which catastrophically affected the budgets of all states and dislocated them. The resultant 24.67 per cent that is undeclared amounts to N15.53 billion per annum. This figure comes from the 2012 audit report of Nigerian Extractive Industries Transparency Initiative (NEITI) recently released.

“The report claimed that N62.944 billion was the total accrual to the Federation Account in 2012. Extrapolating that to 2013 gives the figure above. A forensic audit of the oil transaction will reveal this fraud and put it down for sharing between the governments.

“Excess crude oil account for most part of 2011 to 2014 was $25. Benchmark for budgeting is $75, selling price of crude oil for the same period was $100. The margin of $25 per barrel to the $75 benchmark is 1/3. If we again use the 2012 oil revenue supplied by NEITI, the excess crude fund should be N21 billion for 2012 alone. The totality of crude oil production and sales will give summarised excess crude oil fund of N75 billion.

“The total admission of excess crude oil fund was about N10 billion. Where is the remaining N64 billion? The unearthing of these huge figures (through an effective auditing of all accounts) will adequately return the accurate allocation to federal and state governments. This is enough to bail out the states.”

Afrinvest added that on the basis of the mounting debt profile and declined federal allocation, the need for the Federal Government bailout for states may be inevitable at the moment.

But a civil society activist and Lead Director, Centre for Social Justice, Eze Onyekpere, has reacted to the call for a bailout of the states, insisting that there must be a thorough audit before it can be done.

“The fiscal crisis at the state level is directly and indirectly proportional to the level of fiscal rascality, lack of transparency and planning, and unbridled mismanagement of resources at that level of governance.

“It is also tied to a budgeting process that is not evidence-led and to the docility of citizens that shy away from holding elected leaders accountable. Governors run the states as their personal fiefdoms; they brook no opposition and personalise the instruments of governance to respond to their whims and caprices only. In this scenario, budgets provide no guide to the management of state resources and the budgets are hardly available to the public.

“There’s much work to do at the state level. Before any bailout to state governments by Federal Government, there must be auditing of their accounts by independent auditors with report made public after the exercise. Thereafter, the states must open up their budget process to enable citizens and civil society monitor how they are spending the commonwealth. That’s the real change Nigerians are waiting for,” he said.