Cash crunch has hit many state governments as they are unable to keep up with recurrent expenses from the revenue they generate.
This recurrent expenditure includes statutory payments such as wages and salaries for civil servants; overhead costs, consolidated revenue account charges; statutory transfers; interest payments on existing loans, among others.
Many state governments’ Internal Revenue Generation (IGR) have stumbled due to the economic impact of the COVID-19 pandemic and the dwindling oil price that has discouraged investment.
The statutory allocation from Federation Account Allocation Committee (FAAC), which contributes greatly to their revenue is also being threatened by the rise in oil prices globally, subsidy payments by the NNPC and debt serving obligation of the federal government.
Personnel costs gulp most of the revenue generated and they have resorted to borrowing in order to meet their financial obligations. The practice of borrowing with no plans on how to repay the debt has been described by analysts as unsustainable.
The gravity of the state of revenue hiccups came to fore when the Governor of Edo State, Godwin Obaseki, said the government through the CBN printed N60 billion to support FAAC payments to the states in March.
He said, “When we got FAAC for March, the Federal Government printed additional N50-N60bn to top-up for us to share. This April, we will go to Abuja and share. By the end of this year, our total borrowings are going to be within N15-N16tn.”
However, the Minister of Finance, Budget and National Planning, Zainab Ahmed, faulted the claim that the Federal Government printed between N50bn and N60bn in March.
The minister argued that the money shared to state governments was revenue generated by the federal government.
However, she acknowledged that there was a need to improve revenue to run government and service debts.
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“Nigeria’s debt is still within a sustainable limit. What we need to do as I have said several times is to improve our revenue to enhance our capacity to service, not only our debt, but to service the needs of running government on a day-to-day basis,” she said.
State of States IGR
Analysis of data from Nigeria’s National Bureau of Statistics (NBS) showed that all the 36 states and the Federal capital Territory generated a sum of N1.31 trillion internally in 2020, indicating a 1.93 per cent decline compared to N1.33 trillion recorded in 2019.
This figure however represents an increase compared to N1.17 trillion in 2018.
Checks showed the Yobe (N7.78billion), Taraba (N8.11 billion), Jigawa (N8.67 billion), Gombe (8.54 billion), Ekiti (N8.72 billion) and Adamawa (N8.33 billion) had the least IGR in 2020 as they generated below N10 billion each in the whole year.
Meanwhile, the top 10 states with the highest revenue in 2020 are Lagos, Rivers, Delta, Kaduna, Kano, Ogun, Oyo, Akwa Ibom, Anambra, and Edo states. The FCT also ranks among the top revenue generating regions in the country.
Declining FAAC And Rising Sub-national Debt
Analysts at Afrinvest (West) Africa Limited, a banking and research firm, noted that oil revenue, which for over two decades accounts for more than 60 percent of remittances to FAAC, has declined significantly from a peak of N8 trillion in 2012 to about N3.5trillion.
They added that many of the states have been struggling to raise their IGR and have accumulated debt by that has increased by nearly four-fold from N1.8 trillion to N5 trillion in 2020.
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When the analysts compared IGR figures with total debt shows, it was found that all the 36 states except FCT had their annual IGR printing below 41 percent of total debt stock in 2020.
The analysts raised concern over the level of IGR of the states as it was clear that none of them had the capacity to pay back such loans in the near term.
Statistics from the Debt Management Office (DMO) showed that Lagos had the highest debt burden last year, valued at $1.41 billion, followed by Kaduna ($567.48 billion) and Edo ($280.3 billion).
This waste is not only limited to the states as the 2021 budget is riddled with frivolous and repeated expenses that many experts have advised the government to expunge.
Despite the concerns over the poor economy and sharp decline in revenue, billions of naira was allocated for expenses such as food, travel, purchase of new cars and many repetitive purchases.
An audit of the 2021 budget by BudgIT revealed 316 duplicated projects valued N39.5bn had been allocated to different ministries and agencies.
The organisation revealed that 115 of the duplicated projects were discovered in the budget of the Federal Ministry of Health.
The Civil Society Organisation based in Lagos described the development as disturbing in a statement issued by its Communications Associate, Iyanu Fatoba.
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Governors are also known for hiring too many aides, hiring of jets, flying first class flight tickets, using of exotic vehicles, long convoys, hosting of unnecessary events, sponsorship of pilgrimages, security votes, funding of First Ladies, donation to political parties and funding of unnecessary projects, among others.
However, seeing the reality of the financial challenges, some governors have promised to cut the cost of governance and find new ways of generating more revenue.
The Niger State Government had reportedly said it was adjusting to the dwindling allocation from Abuja.
According to the Secretary to the State Government (SSG), Alhaji Ahmed Matane, the state is working hard to improve internally generated revenue to make up for the shortfall.
Matane said that in addition to boosting the IGR, government is also cutting down the cost of governance in the state.
Previous efforts by the state government to slash workers’ salaries were resisted by the Nigerian Labour Congress (NLC).
Nigeria plunged into economic recession last year but surprisingly came out of it in the fourth quarter of last year due to strong growth recorded in the agriculture and telecommunications sectors.