Report: Most states’ debts above threshold

There is a new concern over the debt sustainability of states in Nigeria as a report by the Fiscal Responsibility Commission has shown that most of them as at the end of 2016 were owing debts well in excess of 50 per cent of their annual revenues.

States in the South-west are the most affected as five of the six states in the geo-political zone are among the top seven states with worrisome debt to revenue ratio. According to the report, Lagos, Osun and Cross River states have debts over 480 per cent of their gross revenues, while those of 18 states exceed their revenues by more than 200 per cent.

The revelations are contained in the 2016 annual report of the Fiscal Responsibility Commission, obtained by the Abuja-based Economic Confidential on Monday. The report revealed that the trend was contrary to the guidelines set by the Debt Management Office on debt sustainability which states that the debt of a state should not exceed 50 per cent of the state’s statutory revenue in the previous 12 months.

“In the light of the DMO’s guidelines on the Debt Management Framework, specifically, sections 222 to 273 of the Investment and Securities Act, 2007 pertaining to debt sustainability, according to the guidelines, the debt to income ratio of states should not exceed 50 per cent of the statutory revenue for the preceding 12 months,” the report said.

Many states, however, flouted the DMO’s directive, with their debt status exceeding the debt to revenue ratio by more than 100 per cent. An analysis of the debt profiles of the states as at December 31, 2016 shows that the states in the South-west top the list of states with worrisome debt to revenue ratio. Lagos, Osun, and Oyo made the top five, followed by Ekiti and Ogun states in sixth and seventh positions respectively.

The report showed that states with the highest debt to gross revenue ratios were Lagos (670.42 per cent), Osun (539.25 per cent), Cross River (486.49 per cent), Plateau (342.01 per cent) and Oyo (339.56 per cent).

Others are Ekiti (339.34 per cent), Ogun (329.47 per cent), Kaduna (297.26 per cent), Imo (292.82 per cent), Edo (270.8 per cent), Adamawa (261.96 per cent), Delta (259.63 per cent), Bauchi (250.75 per cent), Nasarawa (250.36 per cent), Kogi (221.92 per cent), Enugu (207.49 per cent), Zamfara (204.91 per cent), and Kano (202.61 per cent).

The debt to net revenue ratio of Lagos and Cross River puts the states in even more precarious situations. Analysis shows that the debt to net revenue ratio of Lagos, for instance, is 930.96 per cent, while that of Cross River is 940.64 per cent.

The only states whose debts did not exceed the 50 per cent ratio by more than 100 per cent are Anambra, Borno, Jigawa, Kebbi, Sokoto, Yobe and the Federal Capital Territory. The report noted that the debt to revenue ratio is very important in debt analysis as it can give an indication of the capacity of the debtor to service and repay the debt.

The FRC, however, noted that it should not be concluded that a state had over-borrowed because its debt to revenue ratio was more than 50 per cent. “It should be noted that the fact that some states exceeded the threshold of 50 per cent of their total revenue is not an indication that they over-borrowed as the debt limits of the governments in the federation are yet to be set,” the report read in part.

“Furthermore, only total revenue is used for the foregoing analysis as comprehensive data on the states’ Internally Generated Revenue were not available. In any case, the IGR on the average is not more than eight per cent of the states’ total revenue except for Lagos State. In essence, the non-inclusion of the IGR may not distort the result of the analysis.

“Therefore, there is a need for each of these states to work towards bringing their respective consolidated debts within the 50 per cent threshold of their total revenue in order to guarantee a general public debt sustainability in the country.”