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Subsidies: Why states still borrow despite FAAC’s huge allocations – Concerned Nigerians

…Urge citizens to demand accountability from govs’

‘…State assemblies have abandoned their oversight duties’

Despite the huge revenues accruing to state governments due to the removal of fuel subsidies, governors have continued to crave for more loans from both local and foreign institutions; BENJAMIN SAMSON writes.

DMO’s figures

Figures from Debt Management Office (DMO) revealed that in the first six months after taking office, 13 new governors collectively borrowed N226.8 billion from domestic and external financiers.

Further examination of the figures also revealed that additional 16 governors contributed to the debt accumulation by increasing their states’ debt profiles by N509.3 billion, comprising N243.95 billion from domestic creditors and $298.5 million (N265.37 billion) from foreign from international entities like the World Bank and the International Monetary Fund.

The breakdown showed further that the Cross River state secured the highest loan, with N16.2 billion from domestic and $57.95 million from foreign creditors. Katsina state followed with a surge in debt from N62.37 billion to N99.3 billion by December 2023, amounting to N36.93 billion.

Niger state ranked third, experiencing an increase from N121.95 billion to N139.8 billion in domestic debt during the same period, totalling N17.85 billion. Plateau, Rivers, Zamfara, and the FCT also engaged in borrowing activities from domestic creditors.

On the foreign debt front, Ebonyi state has accumulated $37.54 million, while Kaduna state borrowed $17.69 million from external financiers. Similarly, governors from other states like Kano, Niger, Plateau, Sokoto, Taraba, and Zamfara also secured loans from external sources.

Reactions 

In an interview with this reporter, a political economist, Dr. Chukwuemeka Nworgu, said increased revenues to state governments as result of the removal of fuel subsidies “has not translated to infrastructural and economic development in many states of the federation.”

He said, “We were told that removal of fuel subsidies would free up a lot of funds for state governments to provide infrastructure and social amenities in their states. 

“The vice-president, Kashim Shettima, alluded to the increased allocations to the governors recently during the grand finale of the All Progressives Congress (APC) campaign rally in Benin City, Edo state, where he stated that this period is the best time to be a governor in Nigeria.

“It is sad that despite these huge revenues to the state and local governments, there are still no good roads and other amenities to make life meaningful. The only glaring evidence of these increased allocations is the very expensive lifestyles of the political leaders and their reckless spending.

“Unfortunately, while the attention of many Nigerians is focused on the federal government, nobody demands accountability from the governors and local government chairmen.

“Nigerians should really begin to focus on these two tiers of the government to know how they spend their allocations.”

State assemblies

For public affairs analyst Issa Dahiru,  houses of assembly must rise up to their constitutional responsibility of providing oversight functions on the activities of the executive in their respective states as provided in the DMO guidelines on borrowing by the states.

He said, “The state assemblies should up their game by checkmating the governors. They must be carried along by the governors in all processes dealing with loan proposals, up to the point of the final signatures. They have the power to block any loan proposal that they are not convinced will be in the overall interest of their states. The federal government should also assist, especially where it involves old loans.

“The impetus for the recourse to loans by the sub-national governments has always come from the general paucity of funds available to them. Now, that narrative is changing.  The monthly allocations from the FAAC are rising due to the petroleum subsidy removal. For instance, in 2023, the FAAC allocations to the three tiers of government rose to N10.143 trillion, a 23.56% increase over theN8.209 trillion disbursed in the year before.

“According to the Nigerian Extractive Industries Transparency Initiative (NEITI), there are also projections that this year’s allocations will be higher than last year’s. Therefore, Nigerians would like to see what their governors are spending the money on before the states even consider taking loans. All these call for strict observance of fiscal responsibility rules at the state level.”

IGRs

In his reaction, a professor of Economics at Babcock University, Segun Ajibola, advised governors to look for means of increasing their Internally Generated Revenue (IGR) instead of resorting to excessive borrowing.

“Governors should improve on Internally Generated Revenue and the money should be accounted for. The experience in the past had been a gross display of poor managerial spirit by governors, who displayed an embarrassing lack of entrepreneurial attributes. 

“Unfortunately, many of our governors and their finance commissioners would rather go for loans than initiate programmes to raise revenues from internal economic activities in their states. The result has been a perpetual dependence on the monthly Federal Revenue Allocation and in its absence the recourse to borrowing.

“Our governors must know they are in office to improve the lives of the people of their states. They have sworn to cater to the welfare of the people they govern. Therefore, those who present themselves to be elected into the office of governor must be prepared to make positive impacts on their citizens. “And the truth is that no meaningful impact can come from a state governor who approaches his job with a laid-back attitude or indiscriminate borrowing,” he said.

Similarly, a former Accountant General of Kogi state, Zakaria Adejide, advised governors against excessive borrowing, urging them to rather improve on the IGRs of their states as well ensure transparency in the management of state resources.

He said, “Nigeria’s gross debt level has climbed from N19.3 trillion in 2015 to N91.6 trillion in 2023. The debt-to-GDP ratio has almost doubled from 20 per cent to 39 per cent over that time period.

“While the debt-to-GDP ratio may not look so alarming, as revenues decline, the burden of debt servicing has increased dramatically.

“The debt service to revenue ratio is certainly alarming, at 83.2 per cent in 2021 and 96.3 percent in 2022, according to the World Bank.

“This means that at the federal level, after servicing our debt, there is little room to pay for recurrent expenditures, let alone investment.”

Debt-servicing 

Adejide, however, attributed the significant increase in debt- servicing costs partly to the devaluation of the Naira, which drove up the cost of servicing foreign debt obligations “as the nation grapples with the forex liquidity crisis and exchange rate volatility.”

“The significant debt-servicing costs were adversely impacted by the depreciation of the naira, which caused a decline in its value relative to other currencies.”

He also said the enormous debt burden inherited by the current administration was also straining state finances and impacting its ability to meet major obligations.

“The point is that these states inherited a huge burden of debts. The figure mentioned may sound outrageous but is not much when calculated in dollar terms. Multilateral debts are also tied to infrastructural projects and developmental purposes. Borrowing is not in itself bad if it is used for developmental purposes but the burden of debt must not suffocate the state finances and affect its ability to fulfill major obligations.

“Also, those debts are foreign and once the naira depreciates, it affects the level of debt. As they struggle to service it, the level is still going up because of the exchange rate depreciation. With the depreciation of the currency, the burden of servicing those loans has become extremely very heavy. The exchange rate factor is a major challenge in the debt burden of many states.”

Recurrent expenditures

Prof. Ajibola also raised concerns over states’ spending on recurrent expenditures, highlighting the need to embrace financial innovations.

He noted that the enduring problem of high governance expenses had persisted at the state level, with inadequate oversight and accountability resulting in minimal economic benefits for grassroots citizens.

He lamented that state assemblies had also abandoned their oversight duties, leaving the governors to operate with no iota of transparency and accountability.

“The first issue is the perennial complaint about the high cost of governance in Nigeria and at all levels. When you look at these issues, attention is often concentrated on the federal government, so the searchlight is always more on the central government. Most often, nobody cares about what is happening in the state and local governments, and that is where the problem is.

“There are so many institutional frameworks in place to look at what is happening at the federal level but who cares about the states? The cost of governance in relative terms is even much higher in states than the federal and that is why you hardly feel the impact of governance in most states.

“Only a few states can boost a significant presence in the lives of their people in our states. The state assemblies are expected to conduct oversight functions on the activities of the executives in their respective states, but in reality, how many states are doing that, leaving the executives to be all in all incurring high costs.”