By Emeka Anaeto, Economy Editor

Federal Government may have come under pressure to assist the states in coming out of their recurrent expenditure crises following a presentation to the Presidency on the impact of states’ debts and salary overhang on Gross Domestic Product, GDP, and the domestic economy. 

President Muhammadu Buhari is scheduled to meet with the governors of the 36 states of the federation today on this problem.

President Muhammadu Buhari attending to some files in his office as he resumed duties at the Presidential Villa, Abuja. Photo by Abayomi Adeshida

A finance ministry source told Vanguard that governors of All Progressives Congress, APC, had sent a presentation to President Buhari through one of its economic policy confidants indicating the precarious nature of the twin financial problems of the states which are bad debt and salary backlogs.

Specifically, the National Bureau of Statistics, NBS, and Debt Management Office, DMO, recent reports on the domestic and external debts of the states as well as their internally generated revenue, IGR, profile were presented to the President as official indication of technical insolvency in states, a development which may have prompted the meeting today.

An analysis by the economic research team of Afrinvest, a Lagos-based investment banking outfit, shows that apart from impaired federal allocation, 14 out of the 23 states whose IGR was published by NBS already have average external debts to IGR ratio of 213 per cent even without including the stock of domestic debt, meaning that it will take revenue inflow of 213 times in excess of their total IGR of N586 billion to cover their negative cash-flow positions.

According to analysts, the implication to the national economy is that the GDP of the 12 states owing salaries accounts for 33.9 per cent of the Nigeria’s GDP. 

This implies reduced purchasing power across the economy which in turn will drag household consumption expenditure and invariably weaken overall GDP for 2015, the first year of the new administration.

The meeting between President Buhari and the governors is expected to focus on the modality of sourcing funds to enable them defray the debts owed their workers.