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Akwa Ibom, 5 other states get DMO warning on dangerous domestic debt profile

By on March 19, 2013

Akwa Ibom, Edo, Kwara, Ondo, Plateau and Taraba states have received the Debt Management Office, DMO, warning alerts as their financial health appears to be tottering delicately near the insolvency bar.

The debt management agency has categorised the states of the federation into three basic groups, depending on their solvency profile.

Those in the pink category are those states already in the danger mark as a result of the high level of indebtedness, while those in the yellow category are considered close to critical on the domestic debt sustainability analysis scale as a result of their huge debt profile.

The third category is green. States included here are considered among those with healthy financial balance sheets, with scores below the recommended solvency ratio of 92 per cent.

Akwa Ibom, one of the endangered states, has in recent times been in the spotlight for the wrong reasons following several reports linking its governor, Godswill Akpabio, with careless expenditure of public funds which critics have deemed ‘wasteful, a display of insensitivity and needless extravagance.’

Bayelsa, Cross River, Delta, Zamfara, Kogi, Ebonyi and Adamawa states, according to the report of domestic debt sustainability analysis undertaken by the DMO, have failed the test.

The report which the DMO board headed by Vice President Namadi Sambo presented for discussion last Tuesday, showed that the seven states’ domestic indebtedness relative to their internally generated revenue, IGR, capacities ranks high beyond the recommended international debt threshold of between 92 and 167 per cent.

Analysis of the pink states shows Bayelsa state leading the high debtor states with a score of 1,712 per cent insolvency ratio and a domestic debt stock of N162.82 billion as at the end of December 2011 while its IGR stood at about N9.510 billion.

Those next to this endangered category are stated in yellow while states whose positions are healthy are presented in green colour.

Cross River is the next endangered state with indebtedness ratio of 548 per cent far above the recommended threshold and a domestic debt stock of N90.750 billion, relative to its IGR size of N16.553 billion as at the end of 2011.

The third in the pink category was Zamfara State which recorded a score of 497 per cent, representing its total domestic debt of N12.968 billion relative to its IGR profile of N2.611 billion in the period under review.

This is closely followed by Ebonyi State with a score of 272 per cent, representing domestic debt stock of about N40.239 billion relative to its IGR of N14.778 billion.

Delta State came fifth with a rating of 263 per cent as the state’s domestic debt stock was at about N90.843 billion, against its IGR level of N34.601 billion.

Adamawa State followed with a rating of 217 per cent with a debt stock of N25.954 billion, while its IGR stood at N11.948 billion.

Kogi State took the rear in the exclusive list with a solvency score of 207 per cent, representing its indebtedness of N34.122 billion in relation to its IGR of N16.500 billion.

The Federal Capital Territory, FCT, was also captured in the pink group of states, though its debt profile was not indicated on the table.

The remaining states presented in green all scored below the recommended solvency ratio of 92 per cent.

Curiously, apart from Rivers, all other top oil producing states that control the bulk of the revenue allocation every month through the Federation Accounts to the 36 states and Abuja, fell under either the endangered or near insolvent states categories.

“Given the fact that sustainability or otherwise of domestic debts are, by best practice, to be measured against the own revenue of the borrower, an analysis of the domestic debts of the states to their IGR was also undertaken,” the DMO said of the solvency exercise relative to IGR.

According to the debt management agency, the Debt Relief International, DRI, solvency threshold of 92 per cent to 167 per cent was applied in the compilation of the report to underscore the need for the sub-national governments to grow their IGRs to reduce excessive pressure on their statutory allocations in the running of their governments and free up resources for other developmental projects.

 
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One Comment

  1. Otito Atikase

    March 19, 2013 at 7:26 pm

    We warned Mimiko but he turned his ears against wise counsel