The debts of four states in Nigeria, according to Fiscal Responsibility Commission (FRC’s) latest report, exceeded their net revenues by more than 400 per cent,
The FRC in its report ‘Debt sustainability analysis of state governments’ stated that the states include Lagos, Osun, Cross River and Ogun.
The debts of all the 36 states and the Federal Capital Territory Administration exceeded 50 per cent of their revenues, contrary to limits set by the Debt Management Office.
The report obtained by Techeconomy.ng contained in the 2019 Annual Report of the FRC said states that had ‘the proportion of Debt-to-Revenue above 50 per cent are assumed to have violated Section F(C) of Debt Management Guidelines, 2012’.
The FRC report read: “The Debt Management Office Revised Guidelines on Public Debt Management, 2012 sets out the rules for public debt assessment in Nigeria.
“Section F(C) of the Guidelines states that the total amount of loans outstanding at any particular time including the proposed loan shall not exceed 50 per cent of the actual revenue of the body concerned, for the preceding 12 months. It can be deduced that all the 36 states and FCT exceeded the DMO threshold of 50 per cent.
“Lagos State accounted for the highest Debt-to-Total Net Revenue as at the end of 2019, with 712.94 per cent. Osun State came second with 650.94 per cent Debt-to-Total Net Revenue. While Cross River and Ogun States were third and fourth with 597.36 per cent and 402.30 per cent respectively.”
The report showed that the revenue and debt situation of the states were not enough to say that the states had over borrowed since the president of the country has not set the borrowing limits for the subnational governments as required by the FRC Act 2007.
According to it, “Nonetheless, this does not lead to the conclusion that such states have over-borrowed, as the overall debt limits of the governments in the federation has not been set.
“It is on record that the overall limits of consolidated debts of federal, states and local governments are yet to be set since the enactment of the Fiscal Responsibility Act, 2007, though the commission has continually engaged the Honourable Minister(s) of Finance, Budget and National Planning on the issue.”
In the absence of predetermined limits set for the subnational government, the FRC uses the limit set by the DMO to determine the level of indebtedness of the states.
Meanwhile, the rule noted that the debts of the states should never be higher than 50 per cent their revenues in the preceding 12 months.