Osun flirts with insolvency, spends 91% of FAAC servicing debt in Q1 -

For every N100 shared to the Osun State government as revenue allocation from the federation account (FAAC), N91 has deducted to service its debt, a pointer to how the state’s fiscal crisis has moved from bad to worse.

The southwestern state has been grappling with years of backlogs of unpaid salaries owing to what analysts described as failure of the government to judiciously harness the revenue potentials of huge human and capital resources, and fresh data emanating have painted a clearer picture of how worse its financial position has got. The state may even be on the brink of seeking life support.

Of the N6.44 billion obtained as revenue from FAAC in the month of January through March, Osun State spent a whopping 91 percent or N5.87 billion of the amount servicing its debt, according to data compiled by BudgIT, a non-governmental organisation that tracks fiscal expenditure of the government.

That’s seven times more than the amount Yobe, a state with a similar size to Osun, spent as a deduction for debt in the period. It is also the highest deduction done ever on any of the 36 states as a percentage of FAAC, showing how terrible the fiscal situation of the state is at present.

“It simply means that the state is insolvent,” said Cheta Nwanze, lead partner at Lagos-based risk consultancy SBM Intelligence

“Either now or soon enough, the state government will no longer be able to meet its obligations to the people. And one of the things that may arise from that is either social unrest or more people leaving the state,” Nwanze said.

A 91 percent federal allocation deducted in servicing the states debt profile would leave the state with only about 9 percent of the revenue to be used as expenditure on health, education as well as other financial obligations for its over 4.6 million people, according to BusinessDay estimate.

This burden on the state could have been a bit lighter but for the government’s inability to look inward and grow its stream of internally generated revenues.

In terms of IGR, the state like many others is also not faring any better either.

Data from the National Bureau of Statistics show that in the whole of 2019, Osun raked in N17.92 billion as revenues generated internally.

This figure represents about 42.5 percent of the total N42.14 billion (FAAC+IGR) the state printed as revenue for the period.

Like others, it could be deduced from the data that revenue gotten from FAAC accounts forms the larger chunk of its total revenue, accounting for close to 58 percent of revenues generated within the period.

With the heavy deduction from the state’s allocation in the first half of the year, analysts believe the state may be in for a tougher time than what was seen before.

For the analysts, they expect a fall in government expenditure, an additional pile-up of salary backlogs, increasing poverty levels in the state, widening inequality, a threat to livelihoods of Osun populace and a further fall in the standard of living to be worsened by the government inability to raise more debt due to a lack of financial viability as well as the coronavirus pandemic which has taken a toll on both federal and states revenue streams.

With a total debt profile of over N170 billion already, Osun state ranks as the sixth most indebted state in Nigeria and is too insolvent to borrow more because of its lack of economic viability to repay.

A $20 million World Bank grant obtained in early 2019 to revamp its health sector has also raised serious controversy by members of the states National Assembly, claiming the money has not been judiciously utilised by the government as many hospitals in the state are still without drugs, appropriate working facilities and understaffed.

The state has slashed its 2020 budget to N82 billion from an earlier planned amount of N119 billion due to the fiscal challenges occasioned by the pandemic, and even at that amount, analysts doubt the state’s capacity to effectively fund the budget.

With a total of 605 confirmed coronavirus cases of the virus out of which 329 have been discharged while 13 died of the virus as of 8th August, according to NDDC data, the state is battling to contain its increasing infection rate so as not to overwhelm its frail health sector.

Osun state might be one of the several cases of states whose finances are on the brinks of insolvency due to a high debt burden compared to revenue, but it is certainly not the only state sailing on that boat.

Due to the inability to generate revenues, many Nigerian states are highly indebted and this singular act has pushed the country’s debt at a record high of N28.6 trillion as at end June, according to data from the Debt Management Office (DMO), of which

Further analysis of the data put forth by BudgIT shows that Lagos, Osun, Plateau, Cross River Ondo, and Bayelsa have the highest FAAC deduction within the period.

The aforementioned states with net FAAC allocations of N25.23 billion, N6.44 billion, N8.53 billion, N8.02 billion, and N35.14 billion, had N15.92, N5.87, N5.18, N5.06, N4.59 and N4.55 billion deducted respectively.

On the other hand, states of Yobe, Jigawa, Anambra, Enugu, with net FAAC allocations of N12 billion, N13.74, N12.34 billion, and N12.09 billion, had the least deduction of N820 million, N1.04 billion, N1.1 billion, and N1.31 billion respectively.