The debt status of most states of the federation exceeds 50 per cent of their annual revenues. For 18 states, the debt profiles exceed their gross and net revenues by more than 200 per cent. Lagos, Osun and Cross River states record over 480 per cent debt to gross revenue.
The Fiscal Responsibility Commission, which stated this in its 2016 Annual Report obtained by our correspondent in Abuja on Monday, said the development was contrary to the guidelines of the Debt Management Office on debt sustainability.
According to the guidelines, the debt status of each state should not exceed 50 per cent of the statutory revenue in the previous 12 months.
The report stated, “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.”
However, an analysis presented in the FRC report showed that most states flouted the directive. In fact, the debt status of many states exceeded the debt to revenue ratio by more than 100 per cent. The analysis was based on the debt profile of the states as of December 31, 2016.
The 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), Oyo (339.56 per cent), Ekiti (339.34 per cent), Ogun (329.47 per cent), Kaduna (297.26 per cent) and Imo (292.82 per cent).
Others were 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 the states puts some of the states in even more precarious situations. The debt to net revenue of Lagos, for instance, is 930.96 per cent, while that of Cross River is 940.64 per cent.
The only states whose debt 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 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.
However, the FRC 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.
The report stated, “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.
“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.”