The current financial viability of Nigerian states offers a clue on the possible crisis that might befall them if they were to offset their debts from their current income stream. The other option would be to look inward and deploy other means in growing their revenue base.
As of half-year 2018, the total debt of the 36 states and the Federal Capital Territory stood at N5.0tn (assuming the exchange rate of N362.7 for external debt), according to data from the National Bureau of Statistics.
This is much higher by 1.4 trillion than a total annualised estimate of N3.6trillion revenue available to the states by the end of 31st December 2018, raising concern on the states’ ability to take in more expenses into their books.
“When the IGR is low, there is basically nothing that can be done”, Wale Aokunrinboye, Head of research at Sigma pension told BusinessDay on phone.
“I feel most states need to be more innovative in taxing as many of them are really not doing anything to grow business activities and boost taxes.”
As of the end of the third quarter 2018, the total state Internally Generated Revenue (IGR) stood at N843.9bn with Lagos accounting for 34 percent or (N283.5bn), while Yobe generated the least at N2.9bn. The total IGR from Lagos, as of first nine months of 2018, was more than the total IGR from the 30 least generating states (N273.6bn).
However, with the FACC allocation inclusive, the total revenue made available to states amounted to N2.7trn in the same period under review. In Similarly, Lagos recorded the largest revenue of N373.5bn while Osun State had the least revenue of N23.9bn.
Only Sokoto, Anambra, Jigawa and Yobe states have their total debt-revenue ratios less than 100 per cent. A debt-revenue ratio of less than 100 percent means that a state can conveniently offset its debts from its current income stream.
“The first conclusion to draw is that these state governments depended on one-off inflows rather than stable revenue streams from taxes and levies collected on a regular basis,” analysts at FBN quest wrote in a note to their clients on February 26. “This also goes in telling us that a state government may identify taxable revenue within its territory but still has to create the infrastructure to collect it.
“These shortcomings have to be given additional focus now that a rise in the minimum wage from N18, 000 to N27, 000 per month appears to becoming.”
The Federal Government in January this year approved the new minimum wage at N27,000, which is 50 percent higher than the current N18,000, in response to the agitation of the labour union since 2018.
The 50 percent wage hike means the amount attributed to salary payments by the state also headed north, to the extent that most states would have little or no cash left to spend on capital projects.
BusinessDay data shows that with the newly approved state minimum wage of N27,000, eight states could be devoting their entire internally generated revenue to the payment of workers’ salaries alone.
Before the implementation of the new minimum wage policy, only two of the 36 states had personnel costs equal 100 per cent of internally generated revenue. These states included Osun State and Yobe State.
However, with the new minimum wage, that number has increased to eight states.
They are Osun, Kebbi, Zamfara, Borno, Adamawa, Taraba, Yobe and Benue States. For all eight, their monthly average personnel costs exceed the IGR.
In addition to the eight states listed, 16 others will see average monthly personnel cost accounting far more than 50 per cent of IGR.
This means more than 50 percent of internally generated revenue of the affected states will be used to pay salaries.
Atiku Abubakar, a businessman and the main contender to Nigeria’s incumbent president in the 2019 presidential election, vowed to restructure the country by empowering states with the capacity to grow its revenue.
The 72-year-old candidate of the opposition party noted that restructuring is the only remedy in freeing states from their overdependence on the centre for monthly revenue and would implement it in his first six months in office, if elected.
This statement, however, sparked uproar from the ruling party with Nigeria’s vice president, Yemi Osinbajo, saying Abubakar had a ‘vague’ concept of restructuring. “The problem with our country is not a matter of restructuring,” Osinbajo said.
“The issue of restructuring is not going to work for a simple reason because outside of the oil-receipt states others are still going to remain the same and not benefit because they are not producing anything.”
