Lagos, Osun, C/rivers, Ogun owe more debt than revenue generations ~FRC
The Fiscal Responsibility Commission (FRC) has said listed Lagos, Osun, Cross Rivers and Ogun States that owed more than they earned in terms of revenue.
According to the commission, the four states exceeded their net revenues by more than 400 percent.
However, the commission based its calculations on the federally distributed monthly revenues collection by each state of the federation and exclude the Internally Generated Revenue (IGR).
In a report on “Debt sustainability analysis of state governments” for 2019, the FRC stated that the debts of all the 36 states and the Federal Capital Territory Administration exceeded their revenues by 50 percent, contrary to limits set by the Debt Management Office (DMO).
The report stated that states that had ‘the proportion of Debt-to-Revenue above 50 percent are assumed to have violated Section F(C) of Debt Management Guidelines, 2012’.
“The Debt Management Office Revised Guidelines on Public Debt Management, 2012 sets out the rules for public debt assessment in Nigeria.
“Section F(C) of the Guidelines states that the total amount of loans outstanding at any particular time including the proposed loan shall not exceed 50 percent of the actual revenue of the body concerned, for the preceding 12 months.
“It can be deduced that all the 36 states and FCT exceeded the DMO threshold of 50 percent,” the report stated.
“Lagos State accounted for the highest Debt-to-Total Net Revenue as at the end of 2019, with 712.94 percent. Osun State came second with 650.94 percent Debt-to-Total Net Revenue. While Cross River and Ogun States were third and fourth with 597.36 percent and 402.30 percent respectively,” the FRC stated.
The report said despite the fact that states’ revenues are lower than their debt, however, that is not enough to conclude that states had over-borrowed since the president saddle with the responsibility by the FRC Act is yet to set the borrowing limits for the subnational governments.
“Nonetheless, this does not lead to the conclusion that such states have over-borrowed, as the overall debt limits of the governments in the federation has not been set.
“It is on record that the overall limits of consolidated debts of federal, states and local governments are yet to be set since the enactment of the Fiscal Responsibility Act, 2007, though the commission has continually engaged the Honourable Minister(s) of Finance, Budget and National Planning on the issue.”
In the absence of predetermined limits set for the subnational government, the FRC uses the limit set by the DMO to determine the level of indebtedness of the states.
This rule says that the debts of the states should not be higher than 50 percent of their revenues in the preceding 12 months.
Given the difficulty in determining the Internally Generated Revenues of states and negligibility of the IGRs for most of the states (except Lagos), the FRC uses revenues collected by the states from the federation account for its calculations.
Thus, Lagos with a public debt of N899.38 billion and revenue of N117.89 billion had a debt to revenue ratio of 762.94 percent. It, therefore, exceeded the 50 percent rule by 712.94 percent.
Osun State’s public debt stood at N169.78 billion while the revenue stood at N24.22 billion. This puts the debt to revenue ratio at 700.94 percent. It, therefore, exceeded the 50 percent rule by 650.94 percent.
Cross River’s debt stood at N235.07 billion while its revenue stood at N36.31 billion. Its debt to revenue ratio stood at 647.36 percent and therefore exceeded the 50 percent rule by 597.36 percent.
Ogun State’s debt stood at N175.09 billion with revenue of N38.71 billion, indicating that debt to revenue ratio stood at 452.30 percent. This means that the state exceeded the 50 percent rule by 402.30 percent.