Lagos, Rivers and Akwa Ibom are the top three most advanced states in Nigeria.
Each election year, politicians fight with all their might to occupy their states number one seat. In doing this, they promise the people heaven on earth. But, when they get elected, they speak differently because they now have access to the figures. Many realise that without the monthly cash from the Federation Account and loans their state would have long become bankrupt.
A report by BudIT, a Non-Governmental Organisation, which monitors governance in Nigeria, shows that were states businesses only Lagos, Akwa Ibom and Rivers will remain operational.
Without lifelines, such as loans by the Central Bank of Nigeria (CBN), Paris Club refund, budget support funds, as well as a refund to states for federal road projects, to mention but a few, many states would have died.
The fiscal sustainability index of states in Nigeria titled ‘state of states’ shows that in terms of having enough Internally Generated Revenue (IGR) to be able to attend adequately to operational and recurrent costs, such as payment of salaries and pensions, 33 states cannot do this without running out of funds to cater for other equally important concerns.
The BudgIT data took into consideration the IGR, Value Added Tax (VAT), and 13 per cent oil derivation going to oil-producing states.
Only Lagos, the report finds out, can spend nearly half of its IGR (which in 2018 was N382.18 billion) on recurrent expenditure at 0.48 per cent, and still have a significant half for other state investments. Rivers and Akwa Ibom stand at 0.73 per cent and 0.91 per cent respectively in this regard. The IGR for Rivers and Akwa Ibom states in 2018 were N112.78 billion and N24.21 billion.
Using state financial statements of the Office of the Accountant General of the Federation, BudgIT’s report shows that only 19 states can meet monthly recurrent expenditure obligations using their IGR and federal allocations, and still have at least a surplus of N100 million.
The states are Akwa Ibom, Anambra, Borno, Cross River, Ebonyi, Edo, Enugu, Imo, Kaduna, Kano, Katsina, Kebbi, Lagos, Niger, Ondo, Rivers, Sokoto, Yobe and Zamfara.
Among the tops is Lagos with a surplus of N21.46 billion after deducting monthly recurrent expenditure from monthly revenues; followed by Rivers with N8.21 billion and Akwa Ibom with N5.28 billion.
The other seventeen states as things stand cannot meet monthly recurrent expenditure obligation with a duo combination of their IGR and federal allocations because their average monthly recurrent expenditure compared to their average monthly revenue in on a negative balance (deficit).
Among the top three in this category of least fiscally performing states is Kogi, with a deficit of N2.75 billion; Oyo, with a deficit of N2.19 billion; and Plateau, with a deficit of N1.73 billion.
The implication of this is that all of the states’ revenues essentially are going into recurrent expenditure. Here the report did not include inflows from grants; so a state could use all of its IGR and federal allocations on paying recurrent expenditures but is getting a bit of money from grants. So, that they can use to invest. However, this is a very precarious position for any state to be in.
Most states have become mere FAAC allocation reception centres instead of harnessing and utilising their collective strengths and establish single focus investment products, thereby becoming hubs of productivity and innovation.
According to the BudgIT report, it was discovered that states like Delta, running huge recurrent expenditure reaching N200 billion, and Bayelsa, despite its size and population, has a high recurrent bill as high as N137 billion, compared with Ebonyi with a recurrent bill of N30 billion, Sokoto (N38bn), Jigawa (N43bn), Yobe (N35bn), etc. It is a recurring theme to see states in South-South Nigeria running high recurrent bills, mainly driven by the high revenues earned due to the 13% derivation.
The report further noted that Cross River with a huge budget of N1.04 trillion only had total revenue less than N80 billion.
However, Kogi lags due to its huge recurrent bill as of 2017, when it was still paying salaries for workers and also had high repayment bills for loans.
The overwhelming burden of debts in states
Debt in itself is not a bad thing only if a state borrows to invest in the economy in such a way that those investments have huge impacts on increased IGR. However, it is worthy of mentioning that any increase in a debt burden that does not correspond to future IGR increments poses a threat to the fiscal sustainability of any state and hampers its ability to meet residents’ needs. This is the worst form of debt.
From the report, as of December 31, 2018, the total domestic debt of states in Nigeria was well over N4 trillion, with Lagos state having the chief portion of N530.24 billion. Other states with relatively high domestic debts include Delta at N228.8 billion, Rivers at N225.59 billion, Akwa Ibom at N198.66 billion and Cross River at N167.95 billion. Yobe has the least domestic debt burden at N27.7 billion.
For external debt in 2018, states owed a collective sum of over $4.2 billion (N1.29 trillion). Lagos state also sits at the apex position of external debts incurred at $1.43 billion. Following Lagos is Edo at $276.3 billion; Kaduna at $227.3 million; Cross River at $188.8 million; and Bauchi at $133.9 million. Taraba State has the least external debt burden at $21.6 million.
States that are favoured are those that either has a low debt burden or have very high IGR and federal allocation.
With regards to the overall debt burden of states, and how long it would take for states to pay off their debts with available revenue, the report revealed that states like Anambra, Sokoto, and Jigawa are among the lowest debt burden, with Anambra toping the rank.
It also noted that states like Ekiti, Cross River, and Osun, are more indebted and are without the requisite IGR; Osun state being the most debt-burdened.
Investments in health
For budgetary allocation to health, only Kwara State allocated more than 15 per cent of its budget to health – 17.8 per cent. Other leading states in allocations to health is Yobe (14.2 per cent), Katsina (13.9 per cent), Bauchi (13 per cent), Sokoto (12.9 per cent), and Nasarawa (10.5 per cent). Bayelsa stands at the very bottom with 2.2 per cent allocation to health. This is a clear indication of the area of prioritization of states from their budget document.
In 2001, Nigeria at the national level agreed to allocate 15 per cent of its budget to health. This is something that has not been met ever since. In the current budget proposal for 2020, we see the allocation to health being 4.1 per cent. Even though this is a national commitment, but states can use it as a benchmark for their states.
On maternal mortality, the United Nations Sustainable Development Goal set as the target 70 deaths per 100,000 live births. And as it stands only six states are doing that or performing better than that right now.
Also in infant mortality, the national strategic document on health outlines 38 deaths per 1,000 live births, but as it stands only two states are there.
According to the report, across regions, Nigeria is well below the world average for doctor density. The national average in Nigeria is two doctors per 10,000 people, against the world average of 15 doctors per 10,000 people. This situation is worse in some regions like the north-west and the north-east, with less than one doctor per 10,000 people, at 0.8 and 0.6 respectively.
World Bank’s verdict on states fiscal sustainability
The World Bank has revealed that Nigeria faces exceptionally low revenue, which is how much the government has available to spend on public service and investment in physical and human capital. Also, the country ranks among the smallest government relative to the size of the economy.
According to a Senior Economist of World Bank, Yue Man Lee, “Nigeria is an outlier in the sense that government spending as a percentage of Gross Domestic Product (GDP) is way lower than other countries at similar income per capita.
“This is as a result of its exceptionally low revenues that Nigeria collects. Nigeria’s total revenue to GDP is about 8 per cent, and that includes oil; non-oil is about 4 per cent of GDP; VAT is less than one per cent of GDP.
“Typically, other countries are looking at more than five per cent GDP in VAT collection. Bottom line is that the low revenues mean that the total amount for Nigeria to spend on things like human capital is limited. These low levels of spending on human capital contribute to poor development outcomes.”
The World Bank recently launched the Human Capital Index that measures how human capital contributes to productivity. It catches three main indicators – survival, education, and health. Despite some progress against some of the indicators, Nigeria is lacking in all three components. Out of 157 countries, Nigeria ranks 152nd. This is a very shocking result.
She explained that Nigeria’s total public expenditure declined form 14 per cent of GDP in 2012 to 10 per cent GDP in 2016, which is the lowest among regional, aspirational and structural peers.
These poor capital outcomes, according to her, is partly because Nigeria spends too little and inefficiently. On education, for example, Nigeria spends about 1.7 per cent of GDP compared to about 4.7 per cent average for sub-Saharan Africa. The quality of education in Nigeria is very low.
“Health is a very interesting story. Again, Nigeria spends very little on health. What we see is that many other countries are spending as little as Nigeria on health, but their outcomes are much better. It means that there is also the question of the quality of spending.
“If other counties that have a low level of spending have better health outcomes, then it points to a direction where Nigeria can improve health and outcomes, even with relatively low levels of spending.
“States have a critical role in changing this kind of fairly dismal big picture. According to the fiscal federalism in Nigeria, states have a major responsibility in delivering health and education services. To do that, states need fiscal capacity in terms of revenues, which include both statutory transfers and IGR. Similar to the consolidated government of federal picture, states revenues have underperformed. What is interesting is that from 2011 to 2014 when oil price and oil production was fairly high, revenues were stagnant. Then we had the fiscal crisis of 2015 and 2016 when oil prices dropped, and we also had shocks in our production. Statutory transfers were pretty much halved to the states.
“The problem was that the non-oil revenue couldn’t respond adequately to fill the gaps. So VAT, although growing, but not as fast as the drop in statutory transfers. Also, the IGR, which is what the states have control over has been growing since 2015, but there is a significant deviation among states in IGR effort and outturns,” she said.
