States face bankruptcy over N339.9bn foreign debt – RMAFC

The Revenue Mobilisation Allocation and Fiscal Commission, said on Wednesday that the 36 states of the federation were owing a $2.165bn(about N339.9bn) foreign debt, resulting in their inability to finance developmental projects.

Making his submission before the Senate Joint Committee on National Planning, Finance, States and Local Governments and Appropriation on the looming bankruptcy in states, Chairman of the commission, Mr. Elias Mbam, said besides the foreign debts, most of the states were highly indebted to local banks in short-term borrowing and were substantially exposed to the capital market.

“Records available to the commission from the Debt Management Office showed that as at December, 2011 the total external debt stock of all the states (multilateral) stood at $2.165bn, while that of the Federal Government stood at $3.5bn and a domestic stock of N5.622tn for the Federal Government alone. The commission considers this profile as high,” he said.

He said that there were huge deductions from the allocations of most of the states of the federation for the settling of the external and domestic debts and bonds which were indications that most of the state governments had collaterised their share of the monthly Federation Account receipts to service such debts.

Mbam said that most of the debts owed banks by states were largely tied to Irrevocable Standing Payment Orders issued to the Accountant General of the Federation to deduct directly from their monthly statutory allocations.

“The implication is that these debt overhangs weigh heavily on the monthly allocations due to the states thereby preventing them from meeting their minimum basic obligations to the citizens,” he said.

According to him, deficit budgeting has become a serious challenge for most states, noting that even though deficit budgeting is tolerable within an acceptable limit, its endless application has endangered and forced the state governments to resort to excessive borrowing in order to meet their basic expenditure demands.

He said the excessive borrowings continued  even when the states had obviously no capacity to pay back.

“The regular sharing of the excess crude account is an indication of the deperate financial position of the state governments to get funds in order to meet costs of governance.

“For instance, the sum of $1.5bn was shared in three equal installments from the execess crude account in 2011 alone out of which states received the sum of $400.8m.”

He told the joint committee that between 2009 and 2011 all the states had a gross statutory allocation of N2.66tn out of which N266.89bn was deducted as total foreign and other loans within the period with varying degrees of effect on the allocations.

Mbam noted that noticeable indicators of financial distress in states included the cries by states that they could not pay the new national minimum wage in the face of the task to provide minimum services to the citizenry.

“This is a critical sign that the finances of most states and local governments are unhealthy. Today, most states have not been able to implement the new minimum wage. This challenge has made state executives to call for the review of the Revenue Allocation Formula in favour of states.

“Equally, they have also called for the removal of fuel subsidy, which they also believe would enhance the revenue accruing into the Federation Account and invariably the statutory allocations to their respective states and local governments,” he said.

Mbam however recommended that the National and State Assemblies should consider appropriate legislation limiting the total exposure of states to external and domestic borrowing to not more than 20 per cent of their monthly allocations from the Federation Account.

“In addition, such borrowing should be for economic projects. Furthermore, there should be strict compliance to the relevant provisions of the Borrowing by Public Bodies Act,” he said.

He also suggested that governments at all levels should diversify their economic base in order to enhance internally generated revenue, just as he called for a review of exclusive concurrent list with respect to the responsibilities of the Federal, States and Local Governments for appropriate revenue allocation.

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