BY CLIFFORD NDUJIHE
AFTER the euphoria of their electoral victories, one of the major challenges that will confront the President-elect, Major-General Muhammadu Buhari (retd), and 20 or 21 new governors is the level of debt stock the out-going administrations will leave behind.
According to the Debt Management Office, DMO, the Federal Government has a stock of $6.445 billion in external debt (N1.29 trillion at the rate of one dollar to N200)) and another N7. 9 trillion domestic debt totalling N9.19 trillion, as of December 31, 2014. This is the equivalent of two years budget.
According to external debt figures released by the DMO, Lagos State is the most indebted state in the country with a debt of $1,169,712,848.65 (N233.94 billion). The state had also borrowed N167.5 billion from the bond market. Thus, Lagos is owing at least N401.44 billion. This is one of the issues that Governor-elect, Mr Akinwunmi Ambode will confront when he takes over from Governor Babatunde Fashola, next month.
Among the 29 states where governorship elections were held last Saturday, new persons will take over in 20 states, if Governor Rochas Okorocha of Imo State is re-elected after the April 25 supplementary elections otherwise the number of newcomers will be 21.
The other states where fresh men will take over are Abia, Adamawa, Akwa Ibom, Bauchi, Benue, Cross River, Delta, Ebonyi, Enugu, Jigawa, Kaduna, Kano, Katsina, Kebbi, Lagos, Niger, Plateau, Rivers, Sokoto and Taraba.
Most of these states are highly indebted. Following declining oil prices in the international market and inability to boost their internally generated revenue, many states, in addition to obtaining loans and overdraft from banks, had approached the capital market in the last four years to raise funds. The amount of money they borrowed through the issuance of bonds has tripled over the period, rising to N673 billion from N298 billion in 2011. About 12 states have issued bonds totalling N375 billion, surpassing the total bonds issued by all states in the country since 1978. Lagos State tops the list of borrowers from the bond market, at N167.5 billion. Rivers recently launched a N100 billion bond. Delta State is third with N50 billion. Others include Gombe (N30 billion), Ekiti (N25 bn), Niger N21 billion), Bauchi (N15 billion) and Benue (N13 bn).
As of last December, Nigeria’s total public debt stock, according to the DMO stood at about $67.73 billion and N11.24 trillion, which is about N1.2 trillion higher than the 2013 figure of N10.04trillion.
A breakdown of the figures showed that external debt, including those of the states, was $9.71 billion and N1.63 trillion. The Federal Government’s domestic debt was $47.05 billion and N7.9trillion, while those of the states stood at $10.97 billion and N1.708 trillion.
Most indebted states
Using the DMO’s external debt figures without adding domestic debts (see tables), Lagos tops the chart of 10 most indebted states in the country with $1.17bn or N233.94 billion debt. It is distantly followed by Kaduna (N46.88 bn), Cross River (N28.29 bn), Edo (N24.63 bn), Ogun (N21.83 bn), Bauchi (17.51 bn), Katsina (N15.79 bn), Osun (N14.81 bn), Oyo (N14.47 bn) and Enugu (N13.79)
Least indebted states
Leading the states with little exposure to multilateral and bilateral loans are Taraba (N4.56 bn), Borno (N4.61 bn), Delta (N4.85 bn), Plateau (N6.19 bn), Yobe (N6.25 bn), Benue (N6.62 bn), Abia (N6.76 bn), Zamfara (N7.11 bn) and Kogi (N7.16 bn).
However, if domestic debts are added, states like Taraba, Borno and Abia, which have not issued bonds are the least indebted. World Bank Consultant and Abia State Finance Commissioner, Dr Phillip Nto, said Abia State is reluctant to take bonds like many other states because it would mortgage the future of Abians.
He said: ‘’Ordinarily when you collect bond, you are mortgaging your future because you pay over a long period of time but our governor is one that feels that it is not proper to mortgage the future of the state. Abia State is trying to come out from the mess, the monumental difficulty which it was pushed into in early 2000, so for the state to be mortgaged again means that the state will be declared insolvent. It is the reason the governor (Theodore Orji) is not enthusiastic about going to the bond market. But what some other states are achieving with their bond money, Governor T.A. Orji is also achieving with the amount he gets from the federation account and the IGR.’’
South-West, North-West emerge as most indebted zones
Broken into geo-political zones, the South-West and North-West geo-political zones are foreign debt-most exposed zones. The South-West is owing N304.88 billion while the North-West has on its neck, a foreign debt of N106.61 billion.
Least indebted zones
Conversely, the South-East is the least indebted zone with a debt of N49.25 billion followed by North-East (N50.20 billion). Enugu is the most indebted state in the South-East with N13.786 billion debt. The legislative arm of the state government is currently at daggers drawn with the executive over a fresh N11 billion local debt.
The South-South zone is owing N85.46 billion while the North-Central has to repay N56.77 billion.
Implications of FG’s debt
Analysing the Federal Government debt, the DMO said that the debt is sustainable as sustainability analysis showed that the debt/GDP ratio is 11.6 per cent and Nigeria is at a low risk of debt distress, if the reforms embarked upon by the present administration in key sectors were retained and fully implemented. The bulk of the federal government loans were concessionary with low interests and long moratorium.
Currently, the Federal Government spends N700 billion yearly on debt servicing
FG moves against ‘unproductive’ loans
Disturbed by the insatiable appetite of state governments for loans, the Federal Government, last year, directed Deposit Money Banks not to grant fresh loans to state governments unless they got approval and clearance from the Federal Ministry of Finance.
The Minister of State for Finance, Bashir Yuguda, said the decision is not aimed at stalling the development efforts of the state governments, as alleged, but to protect the states from excessive accumulation of debts.
“The domestic debt profile of some states is scary. The states are so much in debt that only a small amount of their allocations get to them at the end of the day because most times money for debt servicing is removed from source,”
Addressing participants in Course 23 for security agents at the National War College, Abuja, Yuguda said most of the states have been experiencing difficulties in servicing their existing debts and it would not be advisable to allow them take fresh loans.
Rather, he stressed the need for the states to continue to look inwards for other sources of revenue to pursue their development programmes.