Many Nigerian states will have to rev up their internally generated income and cut both expenditure and debt, to survive the next few years, a new Fiscal Sustainability Index published by BudgIT Nigeria, a budget transparency advocacy group has said.
The report styled ‘State of the States’, ranks all the 36 states in Nigeria, with Rivers, Lagos, Ogun and Kano the leaders.
Ekiti and neighbouring Osun emerge at the bottom of the ranking, joined by Gombe and Plateau to make the last four.
Rivers topped Lagos, because of its healthier financial profile: lower debt, increase in IGR and ability to pay its bills.
Although Lagos state leads the rest in IGR, accounting for 37 per cent of all the money collected by the states, it is also bogged down by huge debt, over N734 billion as at December 2016, the report said.
The debt burden is more than 25 per cent of the entire debt owed by the 35 states, which now stands at N3.89trillion as at December last year.
A sign of the debt pressure on Lagos state manifested in the first six months of this year, where the state only got N491million on the average from the Federal Government, as it has signed off the bulk of its dues to creditors and bond holders.
Internally Generated Revenue:
In 2016, Lagos State accounted for approximately 37 per cent of total internally generated revenue collected by states. Lagos, Ogun and Rivers states lead in terms of Internally Generated Revenue uptake per capita.
Collection efficiency in Kano is abysmal; despite its huge market size, it could only collect N2,367 per head, which is approximately 9.8% of Lagos collection per head. The least performing states include Borno, Jigawa, Kebbi and Katsina.
Value Added Tax
Due to its market size, Lagos State tops in terms of VAT revenue in the first six months of 2017. Lagos VAT revenue receipts between January and July 2017 averaged N6.38bn monthly, significantly higher than Kano’s.
Ekiti, Ebonyi, Bayelsa and Nasarawa trail the pack. Osun’s net allocation is even in the negative terrain, which invariably puts more pressure on future revenue. The monthly net allocation of oil-producing states Akwa Ibom, Rivers, Bayelsa and Delta average N10.69bn, N7.64bn. N7.21bn and N6.22bn respectively.
State governments are indebted to Nigeria’s banks and investors, shackled by huge repayment debts borrowed against higher oil prices. Total debt profile of the states in 2015 and 2016 was N3.03tn and N3.89tn respectively.
Lagos State’s total debt stock rose from the 2014 level of N500.8bn to N734.7bn in 2016 — accounting for 24.2% of the total debt stock of state governments.
Delta, Kebbi, Gombe and Ebonyi states’ total debt fell by 22.56%, 52.18%, 2.29% and 2.78% respectively, while that of Oyo and Yobe rose by 127.56% and 126.03% respectively.
The state needs to look beyond rhetorics and commit to a reduction in its operating costs, including significantly slashing its unreasonable overheads bill while freeing up more spending for social infrastructure.
States will need to link future borrowing to sustainable projects, which can pay back the capital cost of its current loans and improve the overall income profile of the state.
Economic planners will need to lift states from a perpetual cycle of borrowing, work to improve tax collection efficiencies and realign budgeting with statewide plans.
Significant investment is needed to improve the overall economic performance at state level, which invariably could create jobs that feed into states’ internally generated revenue. Improve spending is also critical for value-added tax revenue. Opportunities in aquaculture, agriculture, manufacturing, trade, logistics and tourism abound across states but it seems states lack the rigour and foresight to explore them.