By Ugo Jim-Nwoko

ONE of the complex problems generated by the Nigeria debt–trap was how the whole country was going to pay for monies borrowed by some states mainly during the Second Republic and the ill-fated Third Republic of Nigeria’s political history.

Most of these resources were, however, spent by government officials mostly on projects and programmes that could not be identified with the needs of the people and their states. In some instances, some of the borrowed monies were stolen.

The Fiscal Responsibility Act has established standards and procedures upon which any government at all levels could borrow; that is to say: Governments at all tiers shall only borrow for capital expenditure and human development provided that such borrowing shall be on concessional terms with low interest rate and with a reasonable long amortization period subject to approval of the appropriate legislative body where necessary.

Recent media reports show that several states are gradually creeping back into the debt cocoon raising different reasons for wanting to borrow. For instance, Ogun and Benue states are going to the capital market to secure bonds amounting to several billions of Naira. Imo State has already secured over N18 billion.

Nothing has shown that due cost-benefit analysis has been undertaken which supports that these states most borrow as a case of urgent importance and necessity. It appears that borrowing has been trivialized in state governance. Not even at an individual level is a perpetual borrower considered responsible. Therefore, the 36 states governments should show a good measure of fiscal responsibility by treating the act of borrowing as sacrosanct and a last resort in their public expenditure management.

This would help in avoiding the mistakes of the past. It is imperative that state legislatures enact Fiscal Responsibility laws in their various states, so as to be abreast with the whole gamut of issues and international best practices in modern public resource use and governance.

A situation where Bayelsa State, an oil producing state that earns 13 percent derivation fund which should make it one of the richest states in Nigeria appears perpetually broke is not exciting and encouraging.

It runs a monthly deficit of N2.671 billion. Chief Asara A. Asara, the State’s Commissioner for Information and Strategy disclosed this. He stated that the state needs N7.5 billion monthly but the total available revenue is about N4.7 billion.

The states Internally Generated Revenue is only N300 million while the monthly allocation is about N4.4 billion. N2.9 billion is used monthly to service and repay debts while the wage bill gulps N3.6 billion.

Although the Fiscal Responsibility Act’s provision on deficit financing (section 12) is not applicable to states, best practices indicate that a deficit of not more than three per cent of the state GDP is ideal.

Running this quantum of deficit financing definitely will lead the state into a financial crisis sooner than later. But the provisions of sections 41 and 42 of the FRA applicable to states indicate that using over 50 per cent of a state’s monthly income for debt servicing is not fiscally prudent.

Further, by article 2.24 headed: “Borrowing from commercial banks” of the guidelines for sub-national borrowing prepared by the Debt Management Office, the monthly debt service ratio of a sub-national government should not exceed 40 per cent of its monthly federation allocation for the preceding 12 months. Obviously, Bayelsa and other few other states are in violation of these rules.

The posers emanating from the above include: How were these debts incurred? On what projects were they spent? Did the legislature approve of these loans? Did Bayelsa people have value for money? The questions are legion.

Also recently, the Leadership newspaper of Friday, August 28, 2009 reported that Abia State government’s debt profile now stands at $26 million. The State Governor, Theodore Ahamefule Orji was quoted as saying in Umuahia that this is responsible for the slow pace of infrastructural development in the state.

That the monthly deductions being made from the states monthly federation allocation was responsible for the inability of the state government to match the developmental growth of states like Lagos State.

According to him, out of N2 billion the state received in July 2009, from the Federation  Account, N1.4 billion was expended on salaries and wages, leaving the government with N600 million only and the monthly internally generated revenue of  N205 million.

This revelation from the Governor of Abia is nothing but his own euphemistic way of saying that the previous government(s) got the state highly indebted and therefore makes it difficult, if not impossible for him to deliver on his campaign promises and his government’s policies.

There is need for a fresh attention to be directed to the lower tiers of government by the Debt Management Office, the legislature in their oversight functions, the media, development experts, opposition parties, civil society groups and all citizens who are
concerned with accountability and transparency in governance to forestall a situation where unsustainable borrowing and poor debt management at the state level will constitute not only an obstacle to good governance but also an  excuse for  failure of successive administrations.

Mr. Jim-Nwoko, a development communications  practitioner, writes Abuja.